American Air’s 74% Jump in Flying Signals Travel on the Mend

American Airlines Group Inc. surged the most on record after the carrier said it would boost July flights 74% compared with this month, signaling that U.S. travelers freed from shelter-in-place orders are returning more quickly than expected.

The busiest days next month will have about 4,000 flights, up from 2,300 in June, said Vasu Raja, American’s senior vice president of network strategy. The July figure is equivalent to 40% of capacity a year earlier, compared with 30% in June, the airline said Thursday. Capacity was even less in May, after a devastating collapse in flying spurred by the Covid-19 pandemic.

“People are hungry, eager to get back into the economy,” Raja said in an interview. “We feel a real confidence to fly a much bigger July.”

American’s expanded schedule builds on recent indications from rivals that customers are starting to make their way back onto planes, at least for domestic flights, after fleeing in April because of the coronavirus. While traffic is still weak by historical standards, the airline’s trends suggest that the worst has passed—and that the rebound in demand has a chance of outpacing the dire expectations the industry was outlining as recently as last month.

The airline’s shares jumped 41% to $16.72 at the close in New York, the biggest gain since trading began in 2013. American’s surge was tops on the S&P 500 Index and sparked a broader industry rally, with the next two slots on the stock gauge claimed by United Airlines Holdings Inc. and Delta Air Lines Inc.

Delta Chief Executive Officer Ed Bastian said Wednesday that the company plans to operate twice as many domestic flights in July as it did in May. Most will be tied to the carrier’s Atlanta hub.

United is taking an approach to July that is in some ways more cautious than American’s, with plans to operate about 30% of its domestic capacity compared with a year earlier. While that’s a sharp increase from this month’s schedule, it lags American’s goal of flying 55% of domestic capacity. Still, United’s peak-day departures will total about 1,960 in July, from 1,100 in June.

American’s load factor, or the average share of seats filled per plane, climbed to 55% last week from 15% in April. Next month, the company will bring back some of the 450 jets it parked during the worst of the collapse in flying, although it hasn’t determined which aircraft will be put back in service.

While revenue is still down 80% from a year ago, that’s an improvement from the 90% drop American experienced in the depths of the crisis as demand nearly disappeared, said CEO Doug Parker.

He recently made a personal trip on Southwest Airlines Co. because American’s flights were booked to new capacity limits that have been set to promote social distancing onboard.

“We have a long road ahead,” Parker said in an interview with CNBC. “But it’s coming back.”

Optimism’s Limits

American acknowledged the limits to the improving outlook. Demand is still weak on lucrative routes to overseas destinations, with the company planning to fly less than 20% of last year’s international schedule. Also, American delayed the planned resumption of additional foreign routes by at least a month.

Even with the encouraging signs at home, the domestic recovery is “tenuous,” Raja said. The Fort Worth, Texas-based company is still retiring more than 100 aircraft, including three separate fleet types.

Wall Street expects a full recovery to take years for the airline industry, with Moody’s Investors Service predicting “severely depressed” demand for flights next year and no substantial recovery until 2023. Jamie Baker, an analyst at JPMorgan Chase & Co., said American’s lingering international weakness was a warning sign.

“We are surprised by the deluge of today’s investor inquiries, following American’s disclosure, as to how positively it should impact earnings and liquidity forecasting,” Baker said in a report. “In our opinion, it should not. In fact, a reasonable extrapolation of American’s domestic-centric commentary implies that 3Q consensus revenue forecasts (and, by extension, liquidity forecasts) may need to worsen somewhat.”

And for all of American’s expectations for July, real-time passenger data has yet to show a dramatic up-tick. An average of 314,000 people went through U.S. airport security checkpoints in the past week, according to the Transportation Security Administration. That’s 13% of the equivalent week a year ago and only slightly above the 12% recorded the prior week.

But based on current trends as encompassed by American’s plans for July, the nadir may be in the rear-view mirror.

The number of daily passengers has grown to 110,330 from 32,154 in the first three weeks of May and “is inching north all the time,” Raja said. By comparison, the airline carried about 600,000 passengers daily pre-Covid 19.

Summer Vacations

The recent gains range from business to leisure trips, Raja said. Corporations are relaxing travel restrictions in states such as Texas and Florida that have eased quarantine requirements. Vacationers are booking flights to amusement parks in Florida, beaches along the Gulf Coast and mountain destinations in Montana, Utah and Colorado.

American resumed service to six international cities Wednesday, but will delay until August or later other flights from the U.S. to Europe and Latin America. The airline’s full July schedule will be available for purchase starting June 7.

United and Delta also are resuming some overseas flights, but lucrative international business traffic is expected to be the slowest area to rebound. Confusion over which countries have lifted travel restrictions and whether tourist attractions, hotels or other industries are open has contributed to the slower global recovery, Raja said.

American also will begin reopening its loyalty club lounges in phases starting June 22, after making improvements to encourage social distancing and reduce the possible spread of Covid-19. The measures include shields at desks and foot-operated door openers.