Southwest Sees Revenue Falling 95%, Posts First Loss Since 2011

Southwest Sees Revenue Falling 95%, Posts First Loss Since 2011

Last week, Delta Air Lines and United Airlines posted their quarter one losses.  Today, Southwest Airlines announced their results, posting their first loss since 2011.  The Texas-based airline also reported it expect revenues to fall 90-95% in April and May.

Southwest Airlines reports it had a net loss of $94 million on $4.2 billion in revenue.  The airline’s revenue was 17.8% lower than last year’s revenue.

In a statement, Southwest CEO Gary Kelly said:

As of April 24, 2020, we had cash and short-term investments of $9.3 billion, with leverage of 47 percent. We are currently the only U.S. airline with an investment-grade rating by all three rating agencies and remain focused on maintaining a strong balance sheet. Following recent debt transactions, we have unencumbered assets worth nearly $8 billion, including more than $6 billion in aircraft.

Kelly told employees last week that one of the advantages the airline has is its balance sheet, noting “We have cash, we have a strong balance sheet, we have low costs.”

The results are not surprising.  Kelly told employees last week to prepare for bad results, given the start of the coronavirus pandemic impacts in late February.  Most troubling from today’s report is the expectation that revenues will drop up to 95% in May.

Southwest also said available seat miles are expected to decrease, year-over-year, by 60%.  Although that seems like a significant drop, other airlines have seen a sharper decline in available seat miles.

Of course, quarter one results are likely much rosier than we can expect for quarter two results.  That will be the first quarter where the entirety of the quarter includes impacts from the coronavirus pandemic.  Airlines will likely release quarter two results in mid-late July.

Bottom Line

Southwest Airlines exceeded expectations, albeit slightly.  But there’s a very good likelihood no airline will be able to exceed expectations in quarter two.  The customers just aren’t there.  Kelly said last week passenger traffic is virtually zero, while Delta CEO Ed Bastian said they’re operating at less than 5% capacity.  We’re likely in for a long series of bad quarterly results.  And the most troubling part about that is airlines will run out of money for payroll in September after government funding runs dry.  So as Southwest sees revenue falling 95% in May we need to hope markets pickup in late summer, or the impacts will be even more significant.