Omicron turmoil weighs on US airlines’ bottom line


US airlines have come a long way since the spring of 2020, when COVID-19 brought the industry to its knees. Still, the pandemic will be omnipresent when the major carriers present their quarterly results starting Thursday.

The latest wave of the health crisis, caused by the highly contagious variant of the Omicron coronavirus https://www.reuters.com/world/us/us-breaks-covid-19-hospitalization-record-omicron-surges-2022-01 -10, wreaked havoc in an understaffed sector. An increase in daily sick calls as well as a series of winter storms led to the massive cancellation of flights https://www.reuters.com/article/uk-health-coronavirus-usa/us-airlines-grapple-with -omicron-related-disruptions-on-last-day-of-the-year-idUKKBN2JA0PP.

For example, in a single day, nearly a third of the staff at United Airlines Newark, New Jersey, got blown. The low carrier Chicago has 3,000 employees who are currently infected with the virus.

Since Christmas Eve, US airlines have canceled more than 30,600 flights, or about 7% of the planned total, according to flight tracking service FlightAware – one of the biggest disruptions in recent years.

Before the Omicron variant began to weigh on airline operations, the quarter to December was shaping up to be the strongest time in the industry for two years.

This promising start prompted Delta Air Lines Inc and Southwest Airlines Co to forecast a profit for the quarter last month. Both carriers had previously planned to report a loss.

Delta is due to release its fourth quarter results Thursday. Analysts on average expect the Atlanta-based carrier to post adjusted earnings of 15 cents a share, according to data from Refinitiv.

Likewise, Wall Bourse expects Southwest’s adjusted earnings to be 9 cents per share on Jan. 27.

American Airlines predicted Tuesday https://www.reuters.com/business/aerospace-defense/american-airlines-expects-q4-revenue-fall-lesser-than-expected-2022-01-11 a smaller drop than expected of its turnover in the fourth quarter. American and United Airlines will both publish their results next week.

SICKNESS FLAME

The turmoil caused by the virus has lowered expectations of a rising profit surprise.

Demand for air travel tends to subside in the first quarter, which should alleviate the staffing needs of carriers. However, their profits could be worse if they have difficulty ensuring the smooth running of operations.

“If planes don’t fly, airlines don’t generate revenue,” said Peter McNally, global head of the industrial materials and energy sector at research firm Third Bridge.

A spokesperson for JetBlue Airways Corp has warned of further cancellations until the number of COVID-19 cases begins to decline. Most of the airline’s crew are based in the northeastern United States where the Omicron variant is raging https://www.reuters.com/world/us/omicron-fueled-covid-wave- crashes-into-new-york-days-before-christmas-2021-12-20.

“Like many businesses and organizations, we have seen an increase in the number of patient calls from Omicron,” said the spokesperson for JetBlue.

The airline has reduced its flight schedule until mid-January and is deploying team leaders and managers for frontline operations. It also offers incentives to crew members who are not supposed to work to take additional shifts and trips.

To alleviate staffing issues, United Airlines is offering its pilots bonuses until the end of the month. Southwest is also offering wage incentives to operational employees until January 25.

AN INCREASE IN COSTS

All of these incentives, along with flight cancellations, are expected to drive up industry costs, which have increased over the past year as a result of efforts to increase operations.

Until Omicron’s emergence, carriers assumed that a rebound in business and international traffic would help ease the pressure on costs and allow them to be profitable this year.

They have all aggressively hired pilots, flight attendants and airport personnel to provide more flights in the spring and summer.

The upsurge in COVID-19 cases, however, has called this assumption into question, as it has led to a new wave of border restrictions.

Delta said last month that while it still hopes for a “very strong” turn on the transatlantic route, the Omicron variant could delay the resumption of international traffic by at least three months. The transatlantic route is one of the most lucrative in the world, accounting for up to 17% of 2019 passenger revenues for major US carriers.

The variant also clouded the outlook for the sector’s cash cow, business travel, as it forced companies to further delay the return of their employees to the office.

Bank of America Corp analysts believe the impact of the pandemic on business travel is the greatest risk to the airline industry.

“The pandemic will continue to influence travel habits, but we believe it will have the greatest impact on business travel,” the bank analysts wrote in a bond. (Reporting by Rajesh Kumar Singh Chicago; editing by Tim Hepher and Matthew Lewis)



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