…nobody, of course. Even the best performing airline is still losing cash faster than an avgeek at a collectibles show, but that doesn’t mean there can’t be the best of the worst, right? Let’s take a look.
Once again, I turned to Raymond James to untangle how to compare cash burn on an apples to apples basis. We now have third quarter numbers to review.
As a reminder, Raymond James standardizes the numbers by excluding grants (that’s CARES Act stuff which shouldn’t be counted as cash in when looking at ongoing company health) and non-aircraft financing (which comes in a big chunk and then has to go back eventually). We also used the number that pulls out severance costs, because that seems more even and more relevant to the actual operation. Here are the third quarter results:
Adjusted Daily Cash Burn
| Airline | 3Q 2020 | 2Q 2020 |
|---|---|---|
| Alaska | $5 million | $5 million |
| Allegiant | $845,652 | $2 million |
| American | $43 million | $59 million |
| Delta | $33 million | $52 million |
| JetBlue | $8 million | $10 million |
| Southwest | $16 million | $17 million |
| Spirit | $2 million | $6 million |
| United | $29 million | $40 million |
Here’s the good news: everyone improved. Even Alaska — which looks flat due to rounding — did slightly better. And congrats to Allegiant for getting under $1 million a day. Of course, Allegiant burning a million dollars a day would be a lot less scary if it was being burned by United. Why? Because United is a much bigger operation, and that’s why we need to look at more numbers for context here.
Below you’ll see the cash burn as a percent of daily revenue to get a sense of scale of these burn numbers.
Adjusted Daily Cash Burn as % of 2019 Daily Revenue
| Airline | 3Q 2020 | 2Q 2020 |
|---|---|---|
| Alaska | 20% | 23% |
| Allegiant | 17% | 38% |
| American | 34% | 47% |
| Delta | 26% | 40% |
| JetBlue | 34% | 43% |
| Southwest | 25% | 28% |
| Spirit | 23% | 53% |
| United | 24% | 34% |
I may have joked about Allegiant’s results above, but when you look at it this way, that is still a really good result compared to the rest. Since Allegiant is a leisure airline with low fixed costs and a desirable geography, it has done very well. Alaska is no slouch either, just as was the case in Q2. The biggest surprise is probably Spirit. It really smashed that Q2 number and is in a much better position from a cash burn perspective.
If you didn’t cut enough in Q2 but you did in Q3, things can change quickly in your favor. Whereas for an airline like United which was quick to react in March, you’d expect to see improvement from Q2 to Q3 be lower. More had already been achieved during Q2.
While it’s nice to know how much cash an airline is burning… wouldn’t we really want to know just how many months of cash each airline had left? This data below assumes that there is no change in revenue between now and the date of doom, so it’s a highly conservative number. But at least it gives you a sense of how they compare to each other.
Months of Available Cash
| Airline | 3Q 2020 | 2Q 2020 |
|---|---|---|
| Alaska | 41.4 | 19.1 |
| Allegiant | 36.2 | 21.3 |
| American | 18.7 | 10.8 |
| Delta | 33.5 | 15.1 |
| JetBlue | 33.9 | 12.1 |
| Southwest | 49.2 | 26.3 |
| Spirit | 33.3 | 11.7 |
| United | 26.9 | 19.1 |
That’s a whole lot of days of cash! You can thank the massive amounts of cash raised in Q3, including the big CARES Act loans, for these numbers looking a whole lot higher than they did at the end of Q2. It’s remarkable how much each airline is sitting on, but right now, that’s important.
Unsurprisingly, American has the lowest reserves. It has a year and a half with no revenue improvement before it has nothing left. But remember, airlines don’t just keep flying until they have no money. They file for bankruptcy long before that happens.
I’m not suggesting American is going bankrupt soon. It still has rope, but it sure needs things to get better faster than others. Meanwhile, there’s Southwest at the other end of the spectrum with a whopping 4+ years left if nothing improves. That kind of cushion means Southwest can feel more comfortable experimenting if it’s a risk worth taking. If it works, then great. If it doesn’t, Southwest can absorb the loss.
Overall, everyone looks better than they did last quarter from both a cash burn and cash-on-hand perspective. That doesn’t mean they can breathe easy, but it does mean they can possibly get off the ventilators.
