DALLAS—Southwest Airlines posted its first quarterly loss in nearly a decade and said on April 28 that the downturn in air travel that began in late February shows no signs of letting up.
The airline said trip cancellations have pulled back from a peak in March but remain at levels that Southwest has never seen, as customers scrap plans to travel during the CCP virus pandemic.
Southwest doesn’t fly to Asia, where the virus originated, and so it felt the effects of the pandemic later than rivals Delta, United, and American. However, with U.S. air travel now down about 95 percent from a year ago, all the carriers are flying through the same storm.
Southwest expects revenue to drop by 90 percent to 95 percent in April and May compared with a year ago, with only 5 percent to 10 percent of seats on its planes filled.
“This is an unprecedented time for our nation and the airline industry,” Chairman and CEO Gary Kelly said in a written statement. “The U.S. economy has been at a standstill, and the current outlook for second-quarter 2020 indicates no material improvement in air travel trends.”
Airlines for America, a trade group for the leading U.S. carriers, said that last week the average domestic flight had about 12 passengers—although passengers have complained about being trapped on crowded planes with most other people not wearing face masks. Airlines are starting to think about how to make passengers feel safe when the number of flyers rises, maybe this summer.
“We will have social distancing at the airports and on the airplanes,” Kelly told CNBC. “We won’t book the airplane full, so I think you can assume that all the middle seats would be open.”
Southwest and other airlines say they encourage passengers to wear masks. JetBlue said late on April 27 that it will be the first airline to require masks, beginning next week. Airlines say they are stepping up the cleaning of planes between flights. Kelly said other measures could include screening passengers to prevent people with a fever from getting on a plane.
But for now, passenger traffic is “virtually zero,” Kelly told employees a few days ago. He said the airline was burning through cash at an alarming rate, and that Southwest was prepared to become a “drastically smaller airliner” if air travel doesn’t improve by July. That was a stunning statement, coming from the leader of an airline that says it has never laid off employees in 49 years of flying.
Dallas-based Southwest has never reported a full-year loss, but analysts expect that streak to end in 2020. Southwest has canceled thousands of flights, asked employees to take unpaid time off, grounded many of its planes, and negotiated for $3.2 billion in federal aid to help cover payroll costs through September.
The company has borrowed $6.8 billion this year, including the federal loan it has already received. Southwest said it plans to apply for the second round of federal help, a secured loan of $2.8 billion and is shopping for money from other sources.
As of last week, Southwest said, it had cash and short-term investments of $9.3 billion and mortgageable assets—mostly planes—worth nearly $8 billion to ride out the crisis. With no immediate need for more planes, Southwest is overhauling its order book with Boeing.
Southwest took another step to raise cash on April 28, disclosing plans to issue 55 million new shares of stock with underwriters getting an option for another 8.25 million shares, and issue $1 billion in debt that can be converted to stock. Those moves, which surprised analysts, sent Southwest shares lower on April 28 morning while shares of Delta, American, and United were up between 3 percent and 4 percent.
Southwest swung to a first-quarter loss of $94 million from a $387 million profit in the same period in 2019. The airline last reported a quarterly loss in September 2011.
The loss, after excluding some items, was 15 cents per share—not as bad as the loss of 48 cents per share that Wall Street expected, according to a survey by Zacks Investment Research.
Revenue dropped 18 percent to $4.23 billion, as the number of passengers fell 21 percent—three times faster than Southwest canceled flights. The average flight—including the halcyon days of January and most of February—was 68 percent full, an extraordinary drop of 13 points from early 2019.
By David Koenig
The Epoch Times contributed to this report.