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The U.S. airline industry has pivoted en masse away from what has proven to be an overly rosy outlook for the recovery this fall. Hopes for a return of business travelers were dashed by delayed office returns that, coupled with the seasonal slowdown in leisure travel, has carriers looking ahead to the end-of-year holidays for a boost.

Airlines heaped blame for the slowdown on the Covid-19 Delta variant. Rising case counts took down August and September numbers, with all but Delta Air Lines forecasting continued weakness until the November and December holidays. Most carriers now forecast a loss in the third quarter — a difficult reality to be faced with after optimistic profit outlooks in July.

“I don’t think the variant changes much of anything,” Delta CEO Ed Bastian said of the recovery at the a Cowen investor conference on Thursday. “The variant is forcing us all to realize this is a serious disease virus that we have to deal with. And we’re dealing with it probably on an even faster pace in terms of getting people vaccinated, the mandates that are coming out.”

Bastian added that he expects the variant has only delayed the recovery in business travel — a lucrative and key segment of most airlines’ financials — by roughly 90 days, or into the fourth quarter. Corporate demand stands at around 40 percent of 2019 levels, unchanged from July. Delta previously forecast an inflection point after Labor Day.

United Airlines Chief Commercial Officer Andrew Nocella reiterated Delta’s outlook on an at least 90-day delay in the return of business travelers. Speaking at the Cowen conference, he said the inflection point was delayed by at best three months and at worst to early in the new year.

But fewer business travelers mean airlines are again pulling back schedules. Delta, Southwest Airlines and United Airlines all revised down their capacity plans for the second half of 2022, while American Airlines expects third quarter numbers to come in at the low end of its previous guidance, or at roughly 80 percent of 2019 levels. Even discounter Frontier Airlines that reaped an outsize benefit from the leisure-first recovery has cut its schedule for the third quarter after being the first to raise alarms over the Delta variant.

The decidedly poor outlooks have carriers looking for something of a holiday gift — if not a miracle — this November and December. Executives speaking at the Cowen conference were nearly unanimous in saying early leisure bookings for the Thanksgiving, Christmas and New Years holidays are at or above pre-crisis levels.

“Even with [the] uncertainty … our book-to-business for the holidays continues to be very strong,” American Chief Financial Officer Derek Kerr said at the conference.

But holiday travel is no sure bet for airlines. Who can forget how just a week before Thanksgiving 2020 the U.S. Centers for Disease Control and Prevention strongly warned Americans against visiting family for the holidays. Covid-19 cases may be receding today but it is anyones guess where they will be in two months time when the country is again preparing the annual pilgrimage home for turkey dinner with family. And that’s not to mention what happens for Christmas and New Years a month later.

“There’s still really robust sort of underlying demand in terms of leisure travel and a desire for business travel to pick back up,” Alaska Airlines Chief Financial Officer Shane Tackett said at the conference. “We’ve just got to get through this wave and hope that there’s not another one — or hope that we’ve all adopted [a] view of life where we’ve got the vaccine and we’re moving on.”

More Red Ink

Robust pent-up demand, to use the popular pandemic turn of phrase, does not translate to profits for airlines. United was forced to recant its previously bullish profit forecast for the second and third quarters to losses as a result of the Delta variant slowdown. Frontier, Hawaiian Airlines, JetBlue Airways and Southwest will also post September quarter losses after either forecasting breakeven results or declining to guide altogether in July. And Alaska and Delta appear on track to report profits, albeit at lower levels than previously hoped.

Missing from these guides was the imminent expiration of the last tranche of federal payroll support on September 30. The three tranches of funds have covered the majority of airlines’ labor costs — in most cases their single largest expense line — since the pandemic began in March 2020. No executive, nor Cowen Airline Analyst Helane Becker, mentioned the potential fallout of this expiration in their comments Thursday.

But the labor situation today is starkly different to what it was a year ago when the first CARES Act was set to expire, let alone when the program began. American, Southwest and Spirit Airlines have all had operational difficulties as a result of staffing shortfalls this summer. The situation was so bad that both American and Southwest were forced to pare back schedules into the fall and winter.

These issues hiring mostly entry-level employees, as well as what has by and large been a robust return of travelers, has few worried of any furloughs or layoffs when payroll support protections expire. What it does mean is that there will increased pressure on airline management to either boost revenue or find cost savings elsewhere to return their bottom lines to the black.

Additional reporting by Skift Airline Weekly Editor Madhu Unnikrishnan.

Photo Credit: The Delta variant has rolled back U.S. airline optimism forcing the industry to look forward to a potential holiday boost. Brett Spangler / Flickr