Southwest posts first quarterly loss in almost a decade

Southwest Airlines posted its first quarterly loss in nearly a decade and said Tuesday 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 coronavirus 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% from a year ago, all the carriers are flying through the same storm.

Southwest expects revenue to drop by 90% to 95% in April and May compared with a year ago, with only 5% to 10% 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.”

Kelly told employees a few days ago that passenger traffic was “virtually zero,” that 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 a 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 worth nearly $8 billion, mostly planes, to ride out the coronavirus crisis. With no immediate need for more planes, Southwest is overhauling its order book with Boeing.

Southwest swung to a first-quarter loss of $94 million from a $387 million profit in the same period last year. 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% to $4.23 billion, as the number of passengers fell 21—three times faster than Southwest canceled flights. The average flight – including the halcyon days of January and most of February—was 68% full, an extraordinary drop of 13 points from early 2019.

Shares of Southwest Airlines Co. have dropped 46% this year. That is the best stock performance by any U.S. airline.