Southwest Says They Won’t Take More Government Cash Despite COVID-19 Pandemic

Although Southwest Airlines is reducing optimism on their third-quarter outlook, the carrier says they won’t be taking additional bailout money from the federal government. Although their burn rate is still in the millions of dollars, the airline says they can “secure additional financing at favorable terms” as an alternative to taking secured government loans.

Southwest Airlines says they won’t be taking any additional loans backed by the U.S. Treasury, expressing their confidence they could “secure additional financing at favorable terms” compared to the government loan program. The carrier announced their decision, along with a depressed outlook for the rest of the third quarter of 2020, in an investor update filed with the U.S. Securities and Exchange Commission.

Airline Braces for “Significant Negative Impact” in Third Quarter

Although the airline signed a non-binding letter of intent to take a $2.8 billion secured loan from the government, the airline now says they won’t need it. Instead, the airline says they can “bolster liquidity” and get better terms on financing through other means if necessary.

The airline may need to secure funding, as they are experiencing “significant negative impacts to passenger demand and bookings in third quarter 2020 due to the COVID-19 pandemic.” The carrier blames an increase in COVID-19 cases across the United States for the projected drop in passengers throughout the remainder of the third quarter.

“Thus far in August 2020, the Company has experienced a modest improvement in close-in leisure passenger demand,” the airline writes in their filing. “However, year-over-year revenue declines remain significant, and passenger demand and booking trends remain inconsistent, which guided the company’s recent reduction of available seat miles (ASMs, or capacity) in August, September, and October published flight schedules.”

Because of the lack of passenger demand, the airline says they expect August’s operating revenues to decrease year-over-year by up to 75 percent. Capacity will drop by around one-quarter compared to August 2019, and load factor of up to 40 percent.

Part of this capacity drop will come from their commitment to block middle seats for travelers not flying together. The policy will continue through at least Oct. 31, 2020.

Across the entire third quarter, Southwest says they expect total capacity to drop in the third quarter by around 35 percent, compared to the third quarter of 2019. This is up from a previous estimation of a decrease between 20 and 30 percent. For October 2020 alone, the airline expects its total capacity to be cut in half compared to 2019.

Southwest Prepares for Schedule Changes to Last Throughout 2021

While Southwest has published their flight schedule through April 11, 2021, the airline is not sure they will fly all of their routes. The carrier warns that while flights are on sale, cancellations may be ahead based on demand and actual airfare.

“The Company will continue to monitor demand and booking trends and adjust monthly capacity, as deemed necessary, on an ongoing basis,” the airline said in their filing. “As such, the Company’s actual flown capacity may differ materially from currently published flight schedules.”