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Airlines

Southwest Airlines Drops $94 Million From COVID-19 Grounding

Southwest Airlines Drops $94 Million From COVID-19 Grounding
Joe Cortez

Like other domestic carriers, Southwest Airlines is coming out of the first quarter of 2020 with a loss due to the novel Coronavirus outbreak. Announced on Apr. 28, 2020, the Dallas-based airline reported a net loss of $94 million, with a depressed outlook for the next three months.

“No material improvement in air travel trends.”

The loss comes despite a first-quarter operating revenue of $4.2 billion and a return on invested capital of 14.3 percent on an after-tax basis. The first-quarter earnings were down over 17 percent compared to the same time last year, while flight cancellations remain at what the airline calls “unprecedented levels.”

“In late February, we began experiencing a precipitous drop in passenger demand and bookings due to the novel coronavirus COVID-19 pandemic, resulting in a first-quarter 2020 net loss,” says Gary Kelly, CEO and board chairman of Southwest. “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.”

As a result of the negative outlook, the airline has “significantly” reduced their published flight schedules through July 2020. In addition, they are reducing “named executive officer salaries,” and cutting Board of Director cash retainers by 20 percent. The airline is also instituting a hiring freeze and started a voluntary time-off program for employees.

Floating the airline during the difficult time is the airline’s total cash on hand. As of Apr. 24, 2020, the carrier says they have $6.8 billion of cash available, which includes $1.6 billion in Payroll Support Program (PSP) proceeds from the CARES Act.

Southwest draws $3.3 billion from the CARES Act

While Southwest has a large cash pool, the airline is still drawing money offered by the U.S. Treasury under the CARES Act aviation bailout. Southwest will take a total of $3.3 billion from the government, which they claim will preserve 60,000 jobs within the company.

The bailout package for the low-cost carrier includes $2.3 billion of PSP funds, and a $948 million unsecured loan. Like Delta Air Lines and United Airlines, Southwest will also offer equity stakes to the government. The Treasury is expected will receive warrants to purchase up to 2.6 million shares of the company’s common stock. The Treasury has not indicated whether or not they will take a stake in the airline.

The COVID-19 pandemic is also further delaying the re-launch of the Boeing 737-MAX, grounded after two fatal accidents in 2019. The 34 737-MAX airframes – the most delivered to any U.S. based carrier – will stay out of the active fleet until at least October 30, 2020.

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