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Airlines Lower Q3 Profit Forecast As Cancellations Rise

Airline companies Southwest Airlines Co and Frontier Airlines recently publicly warned against expectations that they would increase profits for the third quarter, lowering their quarter profit forecasts in the process. According to Southwest Airlines, this change of pace comes amid lower flight books and increased cancellations — both of which are a result of rising COVID-19 cases around the nation.

The Delta variant has caused infections in the United States, and elsewhere, to skyrocket in just a few short weeks. As a result, many economists have worried that these cases may affect business activity. For these two airlines, it seems that Delta finally has. Other airlines, meanwhile, haven’t yet come out and stated what Southwest and Frontier have, though many have canceled flights in the past few weeks.

Southwest has cut its quarter forecast by about three to four percentage points. This new forecast comes less than a month since the airline company announced that they would remain profitable for the rest of the year. As a result of this change in the forecast, Southwest is the first airline company to lower its expectations because of the Delta variant. Frontier has as well; more could possibly follow.

The Delta variant has caused COVID-19 cases to surge around the United States, which has in turn begun to prompt many local and state governments to begin making changes. Some of these changes are now becoming travel restrictions, which could hurt the travel industry. For example, Hawaii has already put restrictions back in place, and the government has already stated that they will put regulations back on travel if cases continue to escalate in their state.

However, there may be light at the end of the tunnel. Some analysts believe that COVID-19 cases are close to peaking, which may mean that cases will slow down once again. Of course, this all remains to be seen, so economists are keeping a close eye on how the Delta variant begins to affect business activity.

This is also the first real sign that the Delta variant truly is affecting businesses. Earlier, weekly job reports (the first to come out that could show influence from the variant) were positive and steady, which made many believe that the Delta variant had yet to really affect the labor market, or business activity. These new announcements from Southwest and Frontier, however, do change that.

Many economists do believe that other airline companies in the United States will begin to lower their own initial forecasts for the third quarter. If this does happen, economists may have a better view of how Delta may continue to affect travel demand, as well as the economy.

While certain regulations — mainly revolving around businesses mandating masks for their employees and, occasionally, customers — have been put back in place, economists don’t necessarily see the economy shutting down as it did in 2020 when the COVID-19 pandemic first began. However, even if the economy continues to grow this year, travel industries and airline companies could continue to face the short end of the stick as people cancel or stop booking flights. 

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