Southwest earnings beat, revenue miss; Alaska Air posts narrower-than-expected loss

Yahoo Finance’s Myles Udland, Brian Sozzi, and Julie Hyman break down how the airline industry faired in the first quarter of 2021.

Video transcript

MYLES UDLAND: --at what we're seeing over in some of those stocks in the premarket, the stocks of all those that we mentioned in the open, Southwest, Alaska, and American, up about 3% in premarket here, following their latest quarterly reports.

And let's just start, guys, with the story at American and the story at Southwest, which is similar in that better than expected performance on the top and the bottom lines, smaller than expected quarterly loss, and both companies pointing towards a point at which they would be breakeven on a cash flow basis.

Both companies still losing money. American is now excited about a $27 million per day cash burn. Southwest, obviously, is a much smaller airline, talking about a $2 million to $4 million per day cash burn. But both companies here, guys, really talking, as I think we can sort of feel all around us, the reopening trade and likely a buoyant summer, at least for domestic travel. Better news, obviously, for Southwest specifically than American.

But Julie, there's certainly-- certainly, the airlines, I think, all else equal, we sat them down this time last year, they would be quite pleased to be seeing the trajectory that these businesses have been on over the last quarter.

JULIE HYMAN: Yeah. And to your point, it does seem like the domestically focused smaller airlines are going to be better positioned here. Alaska also reported this morning. And there too we saw some similar trends in terms of a narrower loss than expected, revenue better than expected, load factor better than expected. And their cash flow actually already turned positive in March. So you're talking about a smaller airline there as well, and obviously domestically focused. So that seems to be more of an advantage in this point in time.

When you talk about getting back to where we were, I mean, the milestone at Southwest that it's pointing to is that by summer, the number of its flights will be almost at the level of 2019. So you know, you wrote about it in this Morning Brief this morning, talking that companies are sort of taking last year out of the equation, in some cases, in terms of their commentary and now comparing things to 2019. So that would definitely be sort of the benchmark for the airlines, if they can get back to those levels.

If some of these bigger airlines that fly globally, they're going to have a much harder path back to those levels. Because at this point, we really still don't know. If there is a more sort of certain flight plan, for lack-- sorry for the pun-- you know, for the domestic airlines in terms of the vaccinations, globally, it's just not, you don't have that kind of visibility.

BRIAN SOZZI: I saw what you did there, Julie Hyman. That was pretty, pretty darn cool. But yeah, no, I think to all, both of your points, what we're seeing in the early moves in the stocks premarket here is very much sentiment driven. As you mentioned, the cash burns at both of those companies, Southwest and American Airlines, improved. Southwest a little more forthcoming with investors this morning regarding their forward, some of the forward-looking trends that they are seeing, saying bookings have improved all the way out until June. That is good.

But one red flag here, and a very interesting one at that, and I tweeted it out this morning. Business travel, at least according to Southwest, is really not showing any signs of improving. So at least from a corporate America standpoint, it remains a lot of Zoom calls for high powered executives. And that is interesting and, I guess, perhaps unsurprising. But business travel is very important, not just for the airlines, also for the hotels. If they're not filling these conference rooms, if they don't have the power CEO back on the road again, that's going to remain an earnings headwind. And it can't all be leisure driven for a lot of these travel companies.

MYLES UDLAND: Yeah, that's right, Sozzi. And I mean, I think everyone knows that there's going to be a longer lead time to getting some of those business travelers back into the fold. I think what's interesting though, is that these stocks, I mean, obviously they've come up a lot over the last year, and they're basically back to where they were pre-pandemic. So we're discounting now. I mean, take an American and a Delta and United, right, the majors are going to be a little bit more levered to business travel than Southwest, although obviously Southwest does have a component of that as well, if they're talking about it on the call. But we're discounting, I guess, a future return to something like the levels that investors found acceptable back in the pre-pandemic time.

And so, you know, I think it'll be interesting to see how that dynamic plays out. Also going to be interesting to see how much value these companies can kind of continue to extract from the frequent flyer miles programs, right? I mean, you can-- they do this in business school, talking about how really airlines, the valuation of an airline is a credit card company with some planes tacked on to the back of it, and that the only thing investors are really interested in are the bank-like functions of being an airline. And I think it'll be interesting to see how those dynamics play out as we continue to kind of look through this period.