Southwest Airlines posts first operating loss in 11 years
Posted April 28, 2020 6:56 a.m. EDT
Updated April 28, 2020 1:06 p.m. EDT
CNN — Southwest Airlines reported its first quarterly operating loss since the depths of the Great Recession 11 years ago.
Southwest lost $77 million excluding special items, which was a bit better than Wall Street's expectations. But it was the carrier's first net loss since 2011, when it took a charge related to long-term fuel purchase contract. And it was the first operating loss since the first quarter of 2009. Revenue fell $915 billion, or 18%, from a year earlier.
The company has been one of the industry's most profitable airlines, but coronavirus has dealt serious damage to airlines. Travel has fallen to virtually zero during the pandemic.
Southwest said the current quarter will also yield miserable results. It said revenue in April and May is expected to be down at least 90%, although trip cancellations have receded from their peak in March. And it said it sold only 6% of its seats to paying passengers in April.
"The current outlook for second quarter 2020 indicates no material improvement in air travel trends," said the company.
Southwest, like the rest of the US airline industry, has accepted help from the Treasury, in the form of a $2.3 billion grant and a low-interest loan of $948 million. It has gotten half of that $1.6 billion. It has also borrowed an additional $5.2 billion since the start of the year and has $9.3 billion of cash on hand as of last Friday.
"We entered this crisis prepared with the US airline industry's strongest balance sheet and most successful business model," said CEO Gary Kelly. "While the impact of the pandemic is unprecedented, we believe demand for air travel will rebound. And, we intend to emerge with ample liquidity."
"It just doesn't pay to not have enough cash in an environment like this," Kelly said in an interview on CNBC.
He estimates that the company will burn through about $900 million in cash in April alone, with some easing in May and June. Then, he hopes, the situation will be "remarkably better in July." But even with the additional cash and the government help, "we can't sustain this kind of cash burn indefinitely," he said.
What Southwest and the rest of the airline industry needs to get people flying again is for the country to open up businesses that give people a reason to travel, Kelly continued in the CNBC interview.
"They need to have something to be able to do once they get there," he said. "Disney World needs to open back up. Restaurants need to open back up."
But additional steps would be needed to make passengers feel safe, he noted -- like masks and pre-boarding temperature screenings. And Kelly suggested that Southwest won't book every seat on a flight even when demand returns.
"We'll have social distancing ... on the airplanes. We won't have airplanes that are booked full. It's certainly not an issue right now. In the coming months, we'll want customers to be comfortable that they'll be spacing. You can assume all the middle seats will be open."
As part of the federal assistance package, Southwest has agreed not to furlough or cut the pay of staff through the end of September. After that, "if traffic doesn't materialize then there's no choice but to downsize the airline," he said. But as of now "it's premature to make those judgments."
It also is not allowed to pay dividends or buy back shares in the second or third quarter. It will be the first time since 1977 it has not paid a dividend. Southwest it has suspended both dividends and repurchases "until further notice."
If the company's losses extend through the full year, it would be the first annual loss at the company following 47 consecutive profitable years.
The company uses only Boeing 737 jets and has more the troubled 737 Max jets than any other airline. But Southwest said Tuesday it doesn't expect to use the grounded planes until at earliest November, and the company warned it could push the use of the planes back beyond that. Boeing has said it expects to get approval to fly the grounded jets by the middle of this year.
Southwest has grounded 350 of the the other jets parked because of its scaled back schedule, about half of its fleet. Southwest said it "is evaluating the need to temporarily remove or retire additional aircraft from its fleet." And it said has agreed with Boeing to reduce the number of new jets that it will add to its fleet through the end of 2021.
-- Correction: An earlier version of this story incorrectly stated when Southwest's last quarterly loss took place