Warren Buffett's Berkshire Hathaway (BRKB) has sold off millions of shares of Delta Air Lines (DAL) and Southwest Airlines (LUV) over the past few days, regulatory filings showed on Friday. That sent Delta stock, Southwest stock and other airline stocks lower after hours.
Berkshire Hathaway cut its stakes as airlines face a steep drop in travel demand due to the coronavirus pandemic. Nations have restricted travel, and passengers are cancelling flights. On Friday, the airlines were working to meet an initial application deadline for aid from the stimulus bill signed last week to cushion the economy against the pandemic.
The sales of Delta stock — nearly 13 million shares, for around $314 million — were dated Wednesday and Thursday, according to the filing. Berkshire sold off 2.3 million shares in Southwest on those days as well as on March 16, transactions that totaled out to about $74 million.
Berkshire Hathaway owned around 59 million shares of Delta following the sales. It owned 51.3 million shares of Southwest Airlines.
Delta Air Lines Inc. was cut to junk at Fitch Ratings as part of a general downgrade of the U.S. airline industry and its ability to service debt. The assessment adds urgency to the Trump administration’s desire to save the industry.
Fitch on Friday lowered its rating on Delta’s debt to “BB+” from “BBB-” and warned that another downgrade is possible as air travel suffers with the spread of the coronavirus. The airline does, however, have more financial flexibility than some rivals, Fitch said in an assessment of the industry.
Delta, Alaska Air Group Inc. and Southwest Airlines Co. are the “better-positioned U.S. carriers to weather the expected downturn,” Fitch said.
Other downgrades by Fitch on Friday include:
Alaska Air downgraded to “BB+” from “BBB-”American Airlines downgraded by one notch to “B”JetBlue Airways downgraded to “BB” from “BB+”Southwest downgraded to “BBB+” from “A-”United Airlines Holdings Inc. downgraded to “BB-” from “BB”
President Donald Trump said on Friday that U.S. airlines must be saved. Responding to a tweet about the $50 billion bailout airlines are asking for, he said, “Not good...but it is what it is. Have to save the airlines!”
Airline Grants
Trump’s administration has announced as much as $32 billion in payroll grants for airlines, contractors and cargo carriers, controlled by Treasury Secretary Steven Mnuchin.
Outside firms are advising Mnuchin on the terms he should set, including what he’ll demand from the airlines in return, such as warrants for equity in the companies. Mnuchin has said the money should be more than a bailout: he’s solicited proposals from the airlines for terms on receiving the aid, and has issued guidance.
“Though Delta remains a stronger credit than its network peers, debt raised to sustain liquidity through the pandemic will drive credit metrics outside of a range supportive of investment-grade ratings at least through 2021 and likely into 2022,” Fitch said in a statement.
Airlines have been battered by the collapse in travel, and have responded by offering workers leaves, grounding planes, cutting flights and freezing hiring, among other steps. The number of passengers screened at airport security checkpoints has fallen more than 90% from a year ago, the Transportation Security Administration has said.
Unpaid Leave
Delta said almost 35,000 employees have taken voluntary, unpaid leave and is encouraging more to apply.
Volunteers to take unpaid leave “are by far the most impactful” step the carrier is taking to reduce operating costs, Chief Executive Officer Ed Bastian told workers in a memo. The airline is enhancing benefits provided to those taking time off and is extending absences of as long as a year to encourage more to apply, he said.
Delta’s flying capacity at New York’s LaGuardia Airport has been cut by more than 90% this month, and by more than 80% at New York’s John F. Kennedy and Newark, New Jersey’s, Liberty Airport, Bastian said.
The airline lost its investment-grade status at S&P Global Ratings last month.
U.S. airline shares were down sharply again on Monday, this time after Warren Buffett said Berkshire Hathaway sold its entire stakes in the four largest U.S. carriers as coronavirus devastates travel demand.
Berkshire was among the largest investors in the four — American, Delta, Southwest and United. Buffett announced on Saturday that the firm dumped those shares. Berkshire posted a net loss of close to $50 billion in the first three months of the year.
American was down more than 9% in late morning trading. United and Delta were each down more than 8%, while Southwest fell more than 7% just after the open to a more than five-year low.
Buffett had long shunned airlines. In a 2007 shareholder letter, he said investors in those businesses “poured money into a bottomless pit, attracted by growth when they should have been repelled by it.”
But he returned in 2016 with a surprise bet on the four carriers as the industry was enjoying steady profits and the benefits of strong travel demand and lower fuel costs than in previous years.
The four last month posted their first quarterly losses in years and warned of a slow recovery in demand from prepandemic levels. Delta’s CEO said it could take two to three years.
The labor union that represents more than 25,000 United Airlines aircraft and passenger service workers sought an injunction Tuesday against sharp schedule cuts, alleging the airline violated the terms of billions in federal coronavirus aid by cutting employee work schedules.
Airlines last month started receiving portions of $25 billion in grants and loans that were earmarked for the sector in the $2.2 trillion CARES Act, the third federal stimulus package and designed in part to help industries hardest hit by the pandemic. A condition of accepting that federal aid is that airlines do not lay off or cut the pay rates of workers through Sept. 30, though executives at major carriers including United and Delta admit they expect to become smaller airlines.
Last month, United said it reached an agreement with the Treasury Department for about $5 billion in payroll support under the CARES Act.
As air travel demand plunged more than 90% in the U.S., airlines have raced to cut costs, parking thousands of jetliners, slashing routes and urging thousands of employees to take unpaid or partially paid voluntary leaves. But several of them, including United, Delta and JetBlue, have announced or already implemented reduced worker schedules with fewer flights, meaning employee paychecks are smaller.
“Travel demand is essentially zero – you see that at our airports and on board our aircraft – and we don’t know when it’s going to come back,” United’s chief operations officer, Greg Hart, said last Friday in a staff note, seen by CNBC. “And importantly, even with a federal government grant that covers a portion of our payroll expense through September 30, we anticipate spending BILLIONS of dollars more than we take in for the next several months, while continuing to employ 100% of our workforce. That’s not sustainable for any company and that’s why we are making difficult decisions across our entire business.”
Uber is seeking to acquire its food-delivery rival, GRUB, a potential all-stock deal with Grubhub reportedly seeking the equivalent of about $68 a share—a premium of about 45% to the stock’s value.
In the past week, low-cost carriers, namely JetBlue Airways JBLU and Sprit Airlines SAVE reported losses in first-quarter 2020 results. With air-travel demand on the wane due to the coronavirus pandemic, the carriers have been persistently incurring losses for the current earnings season. Notably, the likes of United Airlines UAL and American Airlines AAL too suffered losses for the March quarter, which they confirmed while announcing respective first-quarter financial numbers in the previous week.
However, offering some relief, the likes of Allegiant Travel Company ALGT, Copa Holdings CPA and SkyWest SKYW managed to record earnings for the first quarter.
Wrap-Up on the Past Week’s Key Headlines
1. JetBlue’s first-quarter 2020 loss (excluding 55 cents from non-recurring items) of 42 cents per share, compared unfavorably with the Zacks Consensus Estimate of a loss of 41 cents. Results of this Zacks Rank #3 (Hold) carrier, were hurt by the coronavirus-induced weakness in air-travel demand. Moreover, operating revenues of $1,588 million decreased 15.1% year over year and also lagged the Zacks Consensus Estimate of $1,690 million. The year-over-year plunge was due to the 16.1% drop in passenger revenues.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
2. Spirit Airlines incurred a loss of 86 cents per share (excluding 45 cents from non-recurring items) in first-quarter 2020, wider than the Zacks Consensus Estimate of a loss of 60 cents. In the year-ago quarter, the company reported earnings of 84 cents. First-quarter results reflect the impact of the coronavirus crisis on domestic and international air travel in March. Operating revenues of $771.1 million missed the Zacks Consensus Estimate of $848.8 million and also declined 9.9% year over year. Passenger revenues fell 10.1% year over year.
3. Copa Holdings’ first-quarter 2020 earnings of $1.75 per share beat the Zacks Consensus Estimate by 19 cents. However, the bottom line was down17.1% year over year, primarily due to lower revenues. Quarterly revenues also declined 11.4% to $595.5 million but beat the Zacks Consensus Estimate of $592.8 million. The year-over-year deterioration was caused by an 11.4% weakness in passenger revenues. Notably, passenger revenues contributed to 96.5% of the top line.
4. SkyWest’s first-quarter 2020 earnings of 59 cents per share missed the Zacks Consensus Estimate of 88 cents. Also, the bottom line slumped 55.64% on a year-over-year basis, primarily due to tepid air-travel demand in March, stemming from the COVID-19 outbreak. Quarterly revenues came in at $729.9 million, beating the Zacks Consensus Estimate of $690 million. The company exited the first quarter with cash and marketable securities of $578 million, up 11.2% sequentially
5. Allegiant’s first-quarter 2020 earnings (excluding $4.13 from non-recurring items) of $2.05 per share surpassed the Zacks Consensus Estimate of 58 cents. However, the bottom line tanked 48.5% year over year due to softness in revenues, emanating from sinking demand for air travel. Quarterly revenues of $409.2 million beat the Zacks Consensus Estimate of $408.3 million. However, the top line decreased 9.39% year over year due to a 9.8% descent in passenger revenues.
Air traffic (measured in revenue passenger miles or RPMs) for scheduled service fell 8.3% in the quarter under review. Capacity (measured in available seat miles or ASMs) increased 4.3% year over year. Load factor (percentage of seats filled by passengers) was 73.8%, down 10.1 percentage points year over year as capacity expanded while traffic declined.
Price Performance
The following table shows the price movement of major airline players over the past week and during the past six months.
Delta Air Lines Inc. plans to retire its 777 jumbo jets made by Boeing Co. and replace them with Airbus SE aircraft in another hit for the beleaguered U.S. plane maker.
Delta’s 18 Boeing 777s will end service by the end of the year as a result of the coronavirus pandemic, the airline said Thursday.
“The retirement will accelerate the airline’s strategy to simplify and modernize its fleet, while continuing to operate newer, more cost-efficient aircraft,” Delta DAL, -0.98% said.
Delta will continue flying its fleet of long-haul, next-generation Airbus AIR, -1.05% A350-900s, which burn 21% less fuel per seat than the 777s they will replace, the airline said.
Boeing BA, -2.05% did not immediately respond to a request for comment.
The plane maker, still reeling from the worldwide grounding of its 737 Max aircraft, has struggled amid the pandemic as travel ground to a halt and its airline customers delay or forgo plane orders.
Boeing launched its 777 program in 1990, with the first deliveries being made in the mid-1990s.
(Bloomberg) -- U.S. airlines reported signs that travel demand is perking up, suggesting the beginnings of a rebound from an unprecedented collapse because of the coronavirus pandemic.
Bookings are again outpacing cancellations and June reservations are showing “modest improvement,” Southwest Airlines Co. said Tuesday. United Airlines Holdings Inc. is seeing reduced cancellation rates and “moderate” strengthening on U.S. and some international routes. Delta Air Lines Inc. has noticed a slight bounce in leisure bookings, and American Airlines Group Inc. said it’s filling a greater portion of seats on its planes.
The nascent signs of recovery bolstered the outlook for at least a tentative comeback after consumers all but stopped flying in April because of the virus outbreak and government travel restrictions. Carriers cautioned that the landscape remains uncertain for an industry that has already received $25 billion in government payroll aid during the worst crisis in airline history.
A Standard & Poor’s index of major U.S. airlines was little changed at the close in New York, a day after a 14% surge amid a broad rally spurred by positive news about an experimental coronavirus vaccine. Southwest gained 2.2% to $27.69 in the Tuesday session. The others fell, paced by American’s 2.3% drop to $9.64.
Filling Seats
Southwest said in a regulatory filing that operating revenue this month would likely decline no more than 90% from a year ago, slightly better than the previous forecast of a drop of as much as 95%.
The percentage of seats filled per plane in May should average between 25% and 30%, compared with about 8% in April. The Dallas-based carrier earlier projected the figure would be no more than 10% in May. The forecast for capacity remains down as much as 70% from last year’s level.
Southwest also issued its first outlook for June, forecasting that operating revenue would drop as much as 85% and that capacity would decline as much as 55%. With fewer planes flying, its number of seats filled was projected to be 35% to 45%.
The airline also is starting to get a grasp on spending, projecting it would burn $25 million a day on average this quarter, down from an earlier estimate approaching $35 million. With cash use in the low $20 million range, as it this month, Southwest said it would take about 20 months before its $13 billion in cash and short-term investments would be depleted.
Shares of travel-reliant businesses rose Tuesday amid optimism in the potential development of a coronavirus vaccine and economies reopening after a monthslong pause in operations due to the Covid-19 pandemic.
The Dow Jones U.S. Travel and Leisure Index rose about 3.6%.
Though spending on hotels, restaurants, airlines and other industries hurt by social distancing remain low, it appears to be picking up. Hotel occupancy rates in the U.S. have risen for five straight weeks, according to data tracker STR, offering a glimmer of hope that the start of the summer will foster a recovery. Shares of Marriott International Inc. rose about 4.9%, Hilton Worldwide Holdings Inc. about 5.8% and Hyatt Hotels Corp. about 7%.
Six Flags Entertainment Corp., whose shares were up about 9.2%, on Tuesday said it is reopening its Frontier City park in Oklahoma City starting June 5. Shares of other theme parks followed, with SeaWorld Entertainment Inc. up around 7.8% and Cedar Fair LP about 7.2%.
Airlines have taken off, too. The German government and Deutsche Lufthansa AG on Monday said they agreed on a EUR9 billion euro ($9.81 billion) bailout deal, one of the largest aid packages by a single country hatched so far in the air-travel sector. American depositary shares of Lufthansa rose 7.6%. Shares of United Airlines Holdings Inc., American Airlines Group Inc. and Delta Air Lines Inc. were up 13.5%, 11.9% and 9.9%, respectively.
UBS analysts raised the price target of Southwest Airlines Co. to $41 from $37 on hopes for domestic travel recovery. Shares rose 10%.
"We view LUV as the best way to play a recovery in the U.S. airlines given the absence of a bloated balance sheet coupled with network that lends itself to where the recovery will happen first (domestic and then leisure) and more flexibility in its fleet than almost any player given the 737MAX contractual claims with Boeing," the analysts said in a note to clients.
Shares of Carnival Corp., the world's largest cruise operator, rose 12%. It plans to resume eight cruises beginning Aug. 1. Norwegian Cruise Line Holdings Ltd., which suspended voyages through July 31 and is internally planning for third-quarter sailings, was up 13.8%, while Royal Caribbean Cruises Ltd. was up 12.8%.
Amazon.com Inc.’s interest in acquiring a self-driving car pioneer is the prime example (pun intended) of how expectations for driverless vehicles have been recalibrated.
The e-commerce giant is in advanced talks to buy Zoox Inc. for less than the $3.2 billion at which it was valued in 2018, the Wall Street Journal reported on Tuesday. Given the California-based startup’s approach to autonomous cars, its fate is particularly instructive.
In a very crowded field, Zoox was practically alone in aiming to build a whole new kind of electric-powered vehicle, and to operate the fleet itself. Peers such as Alphabet Inc.’s Waymo, General Motors Co.’s Cruise unit, Ford Motor Co. and Volkswagen AG’s joint venture Argo AI, and Aurora Innovations Inc. have focused solely on developing the self-driving technology that could subsequently be fitted into vehicles.
Zoox wanted to be Tesla Inc., Waymo and Uber Technologies Inc. all rolled into one.
Back in 2015, that seemed like an attractive proposition. If the triple threat to the automotive industry was autonomous technology, electric drivetrains and ride-hailing, why not embrace all three? After all, there were expectations that by 2020 robotaxis would ferry you around the world’s metropolises. Capital flowed into self-driving car startups, typified by the $1 billion GM spent acquiring Cruise in 2016.
Those dreams, needless to say, have failed to materialize. Companies that had aimed to jump straight to the fourth of five levels of autonomy have quietly downshifted. (The first level of self-driving encompasses driver-assistance functions such as cruise control, and the fifth is full automation.) Bloomberg New Energy Finance doesn’t expect vehicles with Level Four automation to start gaining traction until 2034. Even then, they will likely represent just 831,000 of the 95 million-unit global car market that year.
What’s more, the expense of developing, building and operating a fleet of self-driving cars would be considerable. Even deep-pocketed Alphabet and GM have sought outside investment for their efforts. Established carmakers are meanwhile focusing their capital on electric cars, a more imminent threat. And owning and operating a fleet is expensive too. Zoox had a tough sell to investors: In 15 years’ time, it might have been an attractive business.
Which brings us to Amazon. Even if robotaxis aren’t coming any time soon, there are alternative applications for autonomous technology that fall squarely in the Seattle-based firm’s wheelhouse, namely, logistics. Given Amazon’s shipping costs are set to hit $90 billion a year, tech from Zoox could help save $20 billion in shipping costs, according to Morgan Stanley analysts. Its solutions could be used across warehousing and distribution. Buying Zoox could take Amazon's other moves in this field — an existing investment in Aurora and experiments with self-driving truck specialist Embark and electric vanmaker Rivian — to a whole new level.
Amazon has become the fantasy acquirer for any number of companies seeking a soft landing: theater chains, brick-and-mortar retailers, food deliverers, mobile carriers, real estate brokers, dental suppliers, film studios and plenty more besides.
Sometimes, just sometimes, those deals make sense. Zoox is one of them.
By Alison Sider This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 27, 2020).
American Airlines says it will fill its planes completely as passengers start to return to traveling after the coronavirus pandemic decimated demand in recent months.
American has been leaving the equivalent of half the middle seats in economy cabins empty to facilitate social distancing, filling planes to about 85% of capacity. The airline said Friday that it will stop that practice July 1, while continuing to alert passengers when their flights are filling up, giving them the chance to switch free of charge.
United Airlines Holdings Inc. allows planes to fly full, though it also gives customers the chance to change flights. Spirit Airlines Inc. is also filling planes to capacity.
Delta Air Lines Inc. and Southwest Airlines Co. are leaving open all middle seats, or the equivalent number of seats. Both airlines have said they plan to continue blocking seats through the end of September.
Airlines are now adding back flights, saying people have started to travel again to visit friends and relatives or head to vacation destinations after months of being cooped up at home. A surge of new infections in states that had been reopening, like Texas and Florida, could jeopardize the rebound in travel.
Airlines have mounted a campaign to convince passengers that flying is safe by preventing infection on board with enhanced cleaning procedures and other measures. American said it will start asking passengers to certify that they have been free of Covid-19 symptoms for 14 days when they check in, joining airlines including United and Southwest that have started asking passengers to attest to being symptom-free.
Airlines are also more stringently enforcing requirements that everyone onboard wear masks. American and other airlines have said that passengers who refuse to comply with mask requirements will risk losing the ability to book future travel.
"Wearing a face covering continues to be one of the most important ways travelers can protect themselves and others while flying," American said in a statement.
Social distancing has become a flashpoint. Throughout the spring, planes were nearly empty, giving everyone plenty of room to spread out. But as demand has started to pick up, some travelers were alarmed to find themselves unexpectedly on relatively full flights.
Airline executives have said keeping seats empty indefinitely is a money-losing proposition, and that even empty middle seats don't provide the level of social distancing that public-health officials recommend.
By Alison Sider Delta Air Lines Inc. will send notices next week to over 2,500 pilots warning of potential furloughs as travel demand is still languishing due to the coronavirus pandemic, the airline wrote in a letter Friday.
Delta and the union that represents its pilots reached a tentative agreement on the terms of a voluntary retirement package for the airline's pilots in an effort to reduce the number who are forced to leave.
But recovery may be at least two years away, John Laughter, Delta's senior vice president of flight operations, wrote to pilots Friday evening.
"Early retirements alone likely won't be enough to avoid pilot furloughs altogether," Mr. Laughter wrote. "Even with the increased travel demand we've seen in recent weeks, we expect revenue to be at only 25 percent of what it was last summer."
The airline and the union are also negotiating a potential agreement that could avoid furloughs altogether for two years, but Mr. Laughter said the airline wanted to notify the 2,558 pilots at risk of being cut under the Worker Adjustment and Retraining Notification Act, known as the WARN Act, to let them know of the possibility.
CNBC earlier reported the notices.
Delta has retired some fleet types altogether to conserve cash and has parked hundreds of jets due to reduced demand, leaving it with more pilots than it needs. Still, airlines have been trying to avoid letting pilots go, which triggers costly retraining and can make it more difficult for carriers to ramp back up when demand does rebound.
Airlines must keep all their workers on the payroll through the end of September under the terms of the $25 billion in federal aid they received earlier this year when the pandemic first took hold and brought travel demand to a near halt. Most airlines, including Delta, have cautioned workers they would have to cut staff when Oct. 1 arrives. Other carriers are offering similar early retirement options to their employees.
Unions representing aviation employees wrote to congressional leaders this week advocating that the payroll support funding be extended another six months, until March 31, 2021.
Delta has 7,900 pilots eligible for the early retirement offer, which includes partial pay for three years or until age 65, as well as health and travel benefits.
Boeing has received Federal Aviation Administration approval to start test flights of its 737 Max to demonstrate that it can fly safely with new flight control software.
The certification flights, conducted by F.A.A. pilots, will probably take place in the Seattle area, where the plane is made. A top Boeing test pilot will also be on the flights. “Testing is expected to take several days, and will include a wide array of flight maneuvers and emergency procedures to enable the agency to assess whether the changes meet F.A.A. certification standards,” the agency said in an email on Sunday to Senate and House oversight committee staff members.
If the flights are successful, it could still be months before the planes are deemed ready to fly again. If the F.A.A. identifies further problems, Boeing may need to make additional changes. The crashes were caused in part by anti-stall software on the Max, known as MCAS, which automatically pushed the nose of the planes downward. Boeing developed a fix for the software, though regulators have identified other problems since.
F.A.A. officials will spend a week or more preparing a report detailing their findings from the flights. Once that is complete, Boeing will submit a package of materials to the agency that will include details of the new software and how it was designed and tested.
The Max crisis has dealt a devastating blow to Boeing’s business. In January, the company estimated that costs associated with the grounding will exceed $18 billion, but that was before the disastrous spread of the coronavirus. The three carriers in the United States that operate the Max — Southwest Airlines, American Airlines and United Airlines — have canceled thousands of flights in recent months. At Air Canada, some pilots who were licensed to fly the Max but not other planes in the carrier’s fleet, had to stop flying after the grounding.
Chinese-owned aircraft lessor BOC Aviation Ltd. has canceled orders for 30 Boeing Co. 737 MAX jets and deferred delivery of others, potentially adding to the U.S. plane maker's growing financial strain.
Hong Kong-listed BOC Aviation said late Tuesday that it signed an agreement with Chicago-based Boeing for the cancellations and an unspecified number of deferments.
BOC Aviation in March had agreed with Boeing to reschedule its 87 outstanding MAX orders, and its next planned delivery was pushed back until the final quarter of 2020.
The MAX jet has been grounded since March 2019 following the second of two fatal crashes. Boeing halted production of the passenger jet in January. Its inability to deliver new MAX jets has pressured liquidity and forced the company to take on additional debt.
The news from BOC Aviation comes on the heels of Norwegian Air Shuttle ASA's announcement Monday that the European discount carrier was cancelling its orders for 92 MAX jets.
United is warning about 36,000 front-line employees about potential furloughs. The terms of $25 billion in federal aid prohibit airlines from laying off or furloughing workers until Oct. 1. Airlines are urging employees to take buyouts or early retirement packages to avoid involuntary cuts.
United Airlines on Wednesday said it is warning about 36,000 front-line employees — more than a third of its staff — about potential furloughs as the coronavirus pandemic continues to roil travel demand.
The potential for the mass job cuts, the largest announced by a U.S. airline so far, comes as signs of a recovery in air travel fade with new coronavirus infections and travel restrictions. Other airlines have warned employees about possible staff reductions and are likely to follow suit with similar formal notices.
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