Southwest Airlines Announces Third Quarter Net Loss of $1.2 billion on 68.2 Percent Revenue Decline
The carrier reported a third quarter net loss of $1.2 billion or $1.96 per diluted share. Excluding special items, Southwest reported a net loss of $1.2 billion or $1.99/share on a 68.2 percent year-over-year revenue decline to $1.8 billion.
On Thursday (October 22, 2020) Southwest Airlines reported their third quarter 2020 financial results with a net loss of $1.2 billion or ($1.96) per diluted share. When special items are excluded, the carrier’s net loss totaled $2.2 billion or ($1.99) per share. The airline reported a year-over year revenue decline of 68.2 percent to $1.8 billion compared to Q3 2019. Southwest Airlines closed the third quarter with $15.6 billion in liquidity, an amount well in excess of the company’s outstanding debt. Operating revenue per available seat mile (RASM) decreased 52.7 percent compared to the third quarter of last year to 6.78 cents, largely attributable to a 38.6 point decrease in load factor and a year-over-year passenger revenue yield decrease of 23.1 percent. In Thursday’s announcement, Southwest Airlines’ Chairman of the Board and Chief Executive Officer, Gary C. Kelly, said in part,
“The pandemic persists along with the negative effects on air travel demand, resulting in our third quarter net loss of approximately $1.2 billion. We are encouraged by modest improvements in leisure passenger traffic trends since the slowdown in demand experienced in July. However, until we have widely-available vaccines and achieve herd immunity, we expect passenger traffic and booking trends to remain fragile. In response, we will continue to monitor demand and prudently adjust our available seat miles (ASMs, or capacity), while pursuing further revenue and cost opportunities. I am grateful to our People for maintaining a safe and reliable operation with industry-leading Customer Service2, which generated the best Net Promoter Score in our history3 in third quarter…
“…We are committed to taking care of our Employees and Customers while protecting the financial health of our Company through the most challenging time in our nearly 50-year history. As a result of our preparedness and swift actions taken in response to the pandemic, our liquidity remains strong, and we remain the only U.S. airline with an investment-grade credit rating by all three rating agencies. As of September 30, 2020, our total liquidity was $15.6 billion, consisting of cash and short-term investments of $14.6 billion and a fully available secured revolving credit facility of $1 billion. We have unencumbered assets worth approximately $12 billion, including $10 billion in aircraft and $2 billion in non-aircraft assets such as spare engines, ground equipment, and real estate. In addition, we have significant value from our Rapid Rewards® loyalty program.
"We remain diligent in managing our cash burn. Since March, we have reduced annual 2020 cash outlays and spending by approximately $8 billion compared with original plans. Average core cash burn was approximately $12 million per day in September and $16 million per day in third quarter 2020, a sequential improvement from average core cash burn of approximately $23 million per day in second quarter 2020, primarily due to improving revenue trends. Our average core cash burn in October is currently estimated to be approximately $12 million per day, and fourth quarter 2020 is currently estimated to be approximately $11 million per day, driven primarily by continued modest improvements in close-in leisure demand and booking trends, as well as cost savings from voluntary Employee separation and leave programs. While we continue to make progress on reducing cash burn, in order to achieve cash burn break even, we estimate operating revenues will need to recover to an estimated 60 to 70 percent of 2019 levels, which is roughly double our third quarter 2020 levels...”
Southwest Airlines’ third quarter operating expenses declined by 33.5 percent year-over-year to $3.2 billion and when special items are excluded, operating expenses decreased 30.1 percent to $3.4 billion. Quarterly operating costs per available seat mile (CASM) decreased 1.1 percent versus Q3 2019, however, when special items are excluded, third quarter 2020 CASM increased year-over-year by 4.1 percent. As a result of capacity reductions, Southwest operated fewer of their least fuel-efficient Boeing 737-700s resulting in a 10 percent increase in fuel efficiency (measured in available seat miles/gallon) for the quarter.
The company’s third quarter results include $1.2 billion in PSP funds (a special item benefit) as well as a special item charge of $1.1 billion related to voluntary separation and extended emergency time off programs. Approximately 15,200 Southwest team members are participating in one of the voluntary programs and if all remaining requests are granted, the program costs could increase to $1.7 billion. As of September 30, 2020, the carrier had approximately $14.6 billion in cash and short-term investments a fully-available revolving credit facility of $1.0 billion. Southwest Airlines has raised approximately $18.9 billion in net cash since the beginning of 2020, including $13.4 billion in debt issuances and sale-leaseback transactions, a $2.2 billion stock offering and $3.4 billion in PSP proceeds.
At the close of the third quarter, the company had current and noncurrent debt obligations totaling $10.9 billion. Southwest repaid $59 million in debt and finance lease obligations in Q3 and expects to repay approximately $543 million in debt/finance lease obligations during the fourth quarter of 2020, including a $500 million bullet maturity payment made in October. As of September 30, 2020, Southwest Airlines had a net cash position of $3.7 billion with an adjusted debt to invested capital ratio of 54 percent.
Southwest returned two leased 737-700s and retired one company-owned 737-700 during the period and ended the quarter with a fleet of 734 aircraft. During Q4, the company plans on returning three additional leased 737-700s. Southwest has reached an agreement with Boeing in which they will take deliver of no more than 48 MAX aircraft through December 31, 2021. The airline currently has 217 firm orders and 115 options for Boeing 737 MAX aircraft beyond 2021 and continues to negotiate with Boeing on order book restructuring. Southwest does not anticipate a re-introduction of their 34 grounded MAX aircraft into the company’s published flight schedules until at least the second quarter of 2021.
In trading Thursday afternoon, shares in Southwest Airlines Co. (NYSE: LUV) were 4.17% higher at $41.50/share (12:54 PM EDT).
Source: Southwest Airlines