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Southwest Airlines Reports Fourth Quarter Net loss of $908 Million, FY 2020 Net Loss of $3.1 Billion

The airline reported a fourth quarter net loss of $908 million or ($1.54) per diluted share on a quarterly revenue decline of 65% to $2.0 billion. For the full year 2020, Southwest reported a net loss of $3.1 billion on a year-over-year revenue decline of 60% to $9.0 billion.

Southwest Airlines Reports Fourth Quarter and Full Year 2020 Financial Results - Courtesy Southwest Airlines

On Thursday (January 28, 2021), Southwest Airlines announced their fourth quarter and full year 2020 financial results. The airline reported a fourth quarter net loss of $908 million or ($1.54) per diluted share on a 65 percent revenue decline to $2.0 billion. For the full year, Southwest reported a net loss of $3.1 billion or ($5.44) per diluted share on a year-over-year revenue decline of 60 percent to $9.0 billion. At December 31, 2020, the company had approximately $14.3 billion in liquidity, substantially exceeding their outstanding debt. In Thursday’s announcement, Southwest Airlines’ Chairman of the Board and Chief executive Officer, Gary C. Kelly, said in part,

“The COVID-19 pandemic devastated the world, and our heart goes out to all those affected. The airline industry was hit especially hard in 2020, and we incurred our first annual net loss since 1972. Our annual 2020 operating revenues declined approximately 60 percent, year-over-year, and we experienced our largest monthly decline in operating revenues in April 2020, down 92 percent, year-over-year, when the pandemic spread and shelter-in-place orders and similar restrictions were implemented throughout the country. Travel and tourism industries face an ever-changing environment as the pandemic evolves. Nevertheless, our Employees have not wavered; rather, they have responded swiftly and with resolve. They adjusted our flight schedules numerous times; implemented new health and safety protocols for Employees and Customers; and developed and deployed remote work capabilities for back-office Employees and Call Center Representatives…

“…We came into the year well-prepared with significant financial strength and started the year strong with an outstanding operational performance and solid net income growth, year-over-year, in January and February 2020, combined. In late February 2020, we began to experience a precipitous drop in passenger demand and bookings due to the pandemic. The situation escalated dramatically, and by mid-March 2020, trip cancellations began to exceed new bookings. We took swift action to address the unprecedented decline in passengers and revenue by significantly reducing available seat miles (ASMs, or capacity), costs, and cash spending. Annual 2020 capacity decreased approximately 34 percent, year-over-year, and we reduced annual 2020 cash outlays by approximately $8 billion, compared with original plans. We implemented voluntary separation and extended leave programs to better align staffing levels and overhead costs to reduced flight schedules. I sincerely appreciate the 15,000 Southwest Family Members who participated in those crucial programs to reduce our annual 2020 salaries, wages, and benefits expense by approximately $565 million. We also raised cash of $10.9 billion, net of repayments and excluding Payroll Support Program (PSP) proceeds, and ended 2020 with liquidity of $14.3 billion and approximately $12 billion in unencumbered assets.

“Average core cash burn was approximately $12 million per day in fourth quarter 2020, and we expect average core cash burn of approximately $17 million per day in first quarter 2021, as a result of continued softness in demand and a seasonally weaker travel period in January and February 2021, as well as rising fuel prices. Including certain changes in working capital, we expect average core cash burn in first quarter 2021 to be in the range of $10 million to $15 million per day, compared with approximately $15 million per day in fourth quarter 2020. 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. In response to current trends, our capacity plans remain conservative through, at least, March 2021, and we will continue to monitor bookings and adjust flight activity, accordingly. 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. In order to achieve cash burn break even, we continue to estimate operating revenues will need to recover to a range of 60 to 70 percent of 2019 levels, which is roughly double current levels…

“Since the Federal Aviation Administration (FAA) issued official requirements in November 2020 that enable airlines to return the Boeing 737 MAX (MAX) to service, we have been working to meet the FAA's requirements by modifying certain operating procedures, implementing enhanced Pilot training requirements, installing FAA-approved flight control software updates, and completing other required maintenance tasks specific to the MAX aircraft. I recently had the opportunity to fly on one of our MAX operational readiness flights, which only reaffirmed my supreme confidence in Southwest's ability to operate the MAX safely. I am very proud of our many Teams who are working diligently to prepare us for returning the MAX to revenue service on March 11, 2021, once all FAA requirements are met and all active Pilots have received updated, MAX-related training…”

During 2020, Southwest launched service to six new destinations including Hilo, Cozumel, Miami, Telluride and Steamboat Springs. Additionally, the carrier announced the intention to add service from eight new airports in 2021 including Chicago O’Hare, Colorado Springs, Houston (IAH), Santa Barbara, Fresno and Jackson, Mississippi.

Southwest’s fourth quarter revenue per available seat mile (RASM) declined 40.8 percent to 8.48 cents, largely attributable to a load factor decline of 29.3 points, while year-over year passenger revenue yield was down 18.7 percent. Annual RASM declined 38.6 percent to 8.75 cents on a 31.1 point decrease in load factor, while annual passenger revenue yield decreased 10.6 percent. For the fourth quarter, Southwest’s cost per available seat mile (CASM) increased 5.8 percent to 13.40 cents. For the full year 2020, operating expenses decreased 33.9 percent year-over-year to $12.9 billion. The company realized savings of approximately $565 million in 2020 from voluntary separations and extended leaves and expects an incremental $600 million in annual 2021 wage and benefit cost savings for a total reduction of $1.2 billion versus 2019.

At the close of 2020, Southwest had approximately $13.3 billion in cash and short-term investments and a fully available $1.0 billion revolving line of credit. During the year, the company raised approximately $18.9 billion (net of transaction fees), including $13.4 billion in debt assurances and sales-leaseback transactions, $2.2 billion through a common stock offering and $3.4 billion in PSP proceeds. As of January 27, 2021, the company had cash and short-term investments of approximately $13.9 billion. The company closed 2020 with current and noncurrent debt obligations of $10.3 billion and a net cash position of $3.0 billion, with an adjusted debt to invested capital (leverage) of 56 percent.

Southwest Airlines ended 2020 with 718 aircraft, including 41 Boeing 737-8 MAX airplanes. Last year, the company returned 12 leased 737-700s and retired 24 company owned 737-700s, while taking delivery of seven leased 737-8 Max aircraft in December 2020. As of December 31, 2020, the company had 60 Boeing 737-700s in storage. Based on a revised agreement with Boeing, Southwest will take delivery of 35 737-8 Max aircraft by the end of 2021, including the seven leased aircraft delivered last December. Southwest currently has 213 firm orders and 115 options for MAX aircraft in its contractual order book beyond 2021.

Dallas-based Southwest Airlines (NYSE: LUV) has distinguished itself by offering exemplary customer service and competitive fares that include “frills” such as free checked and carry-on bags. During peak travel seasons, the airline operates more than 4,000 daily departures to 101 airports across the U.S. and 10 additional countries. According to the U.S. Department of Transportation, based on the number of originating passengers boarded, Southwest has been the largest U.S. domestic carrier since 2003. In 2019, the carrier’s nearly 58,000 employees carried more than 130 million passengers. In 2020, Southwest celebrated their 50th year of service and added service to Hilo, Hawaii, Cozumel, Mexico, Miami and Palm Springs, Steamboat Springs and Telluride.

On Thursday afternoon, shares in Southwest Airlines, Co. (NYSE:LUV) were trading 1.88% higher at $45.01/share (1:06 PM EST).

Source: Southwest Airlines


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