Southwest Airlines finished the most challenging year since its launch with a $3.1 billion loss, even after taking billions in government grants and deeply cutting expenses to take on the devastating COVID-19 pandemic.
Gary Kelly, CEO of the Dallas-based carrier, said Southwest is still losing $17 million a day and that revenue will need to double from current levels to hit break-even.
“While we hope to achieve cash burn break even in 2021, it is wholly dependent upon a substantial rebound in passenger traffic and revenue; and, it is difficult to predict the timing of such a rebound, especially with respect to business travel,” Kelly said in a statement.
Southwest is still clearly in belt-tightening mode, even after getting another $1.7 billion in government stimulus aid this month. Southwest said Tuesday that it would offer another round of partial pay, voluntary leave to employees as the company continues to be overstaffed.
It appears that the early parts of 2021 aren’t providing any relief to the financially battered airline industry. Southwest said its core cash burn will be about $5 million a day higher than the $12 million it burned in the fourth quarter because of “softness in demand and a seasonally weaker travel period.”
“While vaccine availability should mark the beginning of the end of this pandemic, current passenger booking trends do not indicate significant improvement through March 2021,” Kelly said in a statement.”
Overall, Southwest’s revenues were down 64.9% in 2020, falling to just $7.7 billion. The recovery from the COVID-19 pandemic remained up and down to finish the year, with gains in October countered by a drop in demand in November and December “due to the spike in COVID-19 cases and hospitalizations, as well as quarantine requirements, travel restrictions, and related government orders,” the company said.
Competitor American Airlines, based in Fort Worth, reported Thursday that it lost $8.9 billion for the year, including a $2.2 billion loss in the fourth quarter. Revenue was down 69% in the fourth quarter and 65% for the year.
At Southwest, cancelations spiked in November and December and planes were less than 60% full in each of those months, even though Southwest lifted its capacity caps that required planes less than two-thirds full for most of 2020.
While the cancelation rates have stabilized, Southwest is “is experiencing stalled demand in January and bookings for February 2021, primarily driven by the high level of COVID-19 cases and hospitalizations, as well as a seasonally weaker time period for leisure travel demand following the holidays,” the company said in its statement.
Planes are expected to be 50 to 55% full on average during January and February even with revenue down about 70%.
Southwest lost $908 million in the fourth quarter on $1.66 billion in revenue, which was down 68.7% from the fourth quarter a year ago. In 2019, Southwest made a $2.3 billion profit, including $667 million it gave back to employees in profit sharing. Profit-sharing, which gave employees of the various airlines thousands in bonuses last year, won’t exist this year after every major airline took massive losses.
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