U.S. Airlines Say Nascent Recovery Delayed by Omicron Variant

Holiday travel helped U.S. airlines bring in more revenue at the end of last year than any quarter since the pandemic began to ravage travel demand in 2020. But major carriers lost money and have said the new variant and a surge of cases have temporarily dimmed their prospects.

American on Thursday reported a smaller-than-expected loss for the fourth quarter of $931 million. It brought in revenue of $9.43 billion down 17% from the comparable period in 2019.

American, the world’s largest airline, has maintained a larger schedule than rivals throughout the pandemic—it currently offers nearly 20% more seats than Delta Air Lines Inc., DAL 2.50% according to aviation data provider OAG.

American said it expects to fly 8% to 10% less in the first quarter than it did in the comparable period of 2019 and anticipates its flying capacity for the full year to be down 5% from pre-pandemic levels. Still, American executives said bookings have started to come back, echoing optimism among other airline executives who say people are still planning trips for spring and beyond. Mr. Isom said travel demand is recovering more quickly than it has following previous waves of infections.

“We don’t view demand as anything more than delayed—we don’t think it’s diminished,” Mr. Isom said. American said it expects to lose money in January and February before things turn around in March.

On Wednesday, United Airlines Holdings Inc. UAL -0.54% said that it would start the year with a slimmed down schedule to account for the new variant’s chilling effect on demand in the near term, but expected to resume its expansion throughout the year. Delta said last week it believed travel demand would turn around next month and it expected a loss in the first quarter before returning to a more profitable path in the remainder of the year.

Airlines are bumping up against the limits of a recovery in travel. American said U.S. leisure travel and travel to nearby international destinations have just about recovered to 2019 levels. But the new variant and an increase in cases persuaded many large companies to delay bringing workers back to offices, pushing back the rebound in business travel airlines have long sought.

American said Thursday that domestic business travel has started to return back to 70% of 2019 levels—while long-haul international travel has lagged behind due to ongoing restrictions around the world. American still expects corporate travel to return in full, but Mr. Isom said it could look different, with smaller companies returning to travel more swiftly than large corporations.

“We’re working to build an airline that can be profitable even without the full return of managed corporate travel,” he said.

The Omicron variant also disrupted what airlines had expected would be a smooth holiday season. With workers calling in sick in droves, airlines were forced to scrub some 30,000 flights at one of their busiest and most lucrative times of year. American managed to avoid the worst of that impact, canceling fewer flights than rivals, but said it also saw an increase in sick calls at the end of the year.

As they navigate the unpredictable trajectory of travel demand, airlines are facing higher costs for fuel and labor as they struggle to hire pilots, flight attendants, mechanics and other workers to staff up after thousands of employees took buyouts and retired during the pandemic. American said it plans to hire 18,000 people this year, and Chief Financial Officer Derek Kerr said American is experiencing inflationary pressures.

On an adjusted basis, American posted a loss of $1.42 a share. Analysts polled by FactSet were expecting an adjusted loss of $1.46 a share.

—Will Feuer contributed to this article.

Write to Alison Sider at [email protected]