Southwest and Frontier Airlines are starting to brace for the delta variant’s economic impact as infections in the country rise.
Southwest Airlines on Wednesday announced that it estimates its August revenue will be down 15% to 20% after previously estimating it would be down 12% to 17%. It blamed rising cases of COVID-19 for the revised forecast and predicted that the third quarter would also feature its operating revenue down 15% to 20% compared to before the pandemic in 2019.
“The company has recently experienced a deceleration in close-in bookings and an increase in close-in trip cancellations in August 2021, which are believed to be driven by the recent rise in COVID-19 cases associated with the delta variant,” the airline said in a filing with the Securities and Exchange Commission.
While Southwest, the country’s third-largest airline, turned a profit in July, the company said that economic effects from the surging delta variant will likely hurt revenue in August and September, so much so that it will be challenging for the company to have a profitable third quarter when not accounting for federal aid benefits.
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The news comes just days after Denver-based Frontier Airlines, which was profitable in the second quarter, revealed in a report that it anticipates breaking even or possibly posting a slight loss of net income in quarter three.
“Within the last week, we have noted softening in the level of bookings over seasonal norms that we believe is directly related to the increased COVID-19 case numbers associated with the delta variant,” the company said in the quarterly report. “The impact of the delta variant on bookings, and the duration of that impact, are difficult to predict.”
Frontier added that it is confident that forward bookings will increase as COVID-19 cases begin to decline, although as of Wednesday, U.S. infections showed no signs of slowing. New cases are up 86% over the past two weeks, hospitalizations are up 85%, and deaths have increased more than 100%, according to the New York Times.
Patrick Gourley, an assistant professor of economics at the University of New Haven, told the Washington Examiner that there is a “ton of uncertainty” right now surrounding the delta variant and its impact on the airline industry because it is unclear how bad the new wave of infections could get.
He pointed out that business travel makes up an enormous chunk of revenue for airlines and said that the “base hit” for the airlines will be how businesses respond to the new wave of infections. If companies continue to opt out of sending employees on work trips and instead conduct meetings over Zoom, it would damage the air travel industry.
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And the delta variant has already caused shifts in corporate strategy.
Businesses such as Uber, Lyft, and Twitter have pushed back or halted plans for employees to return to the office, while Facebook, Google, Tyson Foods, and many others have begun implementing some form of vaccination requirement in light of delta, particularly for employees to be permitted back into the office.
In addition to business travel, Gourley said that the delta variant will discourage tourism and leisure travel. He said that the strain’s impact will be weighed on a week-to-week basis and that if the wave begins to subside, there will likely be a boost to the travel industry as pent-up demand and the desire to travel, which were already seen earlier this summer, will only grow.
“There definitely are people who really want to travel. It’s just that if we start seeing scenes of filled-up hospitals again, then people are just going to save that money, and then, we’ll see an even bigger demand surge next year hopefully,” he said.
It is also of note that each airline has handled its reaction to the delta variant differently. For example, this week, United Airlines announced that it will be mandating vaccines for U.S. employees. Gourley said that the move could affect business because travelers might feel more inclined to fly with an airline that has inoculated staff.
United CEO Scott Kirby recently said that the delta variant has shown just how important vaccines are. He put a positive spin on the surge and pointed out during an appearance on NBC News that the delta variant is encouraging people to get vaccinated, which he said will benefit the travel industry.
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“I think that air travel is going to continue to recover,” Kirby said. “The silver lining of what has happened with the delta variant is it’s driving much higher vaccination rates across the country, and at the end of the day, that’s the only thing that’s going to really get us out of this crisis.”
