Southwest said that April 2021 operating revenues performed in line with expectations and represented a sequential increase compared with March 2021, driven by improvements in leisure passenger traffic and fares.
Southwest says that it continues to experience improvements in leisure passenger demand and bookings for May and June 2021 travel, with expectations of improving passenger traffic and fares compared with April 2021.
Based on current bookings, leisure fare levels in June 2021 are nearing June 2019 levels, said the airline, which expects those increases to continue.
Southwest comments that it has also recently experienced “modest, consistent improvements” in business passenger demand and bookings. April 2021 business revenues were down approximately 80 percent compared with April 2019, which represented sequential improvements compared with down 85 percent in March 2021 and down 90 percent in February 2021, both compared with their respective 2019 levels. However, business travel demand continues to significantly lag leisure trends and is expected to continue to have a negative impact on close-in demand and average passenger fares in second quarter 2021.
Southwest now expects its second quarter 2021 capacity to increase approximately 87%, year-over-year, and decrease approximately 16% compared with second quarter 2019.
The airline expects July capacity to increase approximately 41%, year-over-year, and decrease approximately 3% compared with July 2019.
Passenger demand and booking trends remain “primarily leisure-oriented and inconsistent by region” and that despite recent improvements in leisure demand, Southwest states that it “remains cautious and continues to plan for multiple fleet and capacity scenarios”.
Southwest expects second quarter 2021 operating expenses to increase in the range of 10 to 15 percent, year-over-year.
The airline’s average core cash burn was approximately $6 million per day in April 2021 but it now estimates that figure to be in the range of $1 million to $3 million per day in second quarter 2021, compared with its previous estimation in the range of $2 million to $4 million per day, primarily due to the expectation of improving operating revenue trends that more than offset higher fuel prices.
Based on current booking trends and cost outlook, Southwest continues to expect to achieve breakeven average core cash flow, or better, in June 2021.
In April 2021, Southwest reached an agreement with the U.S. Department of Treasury for proceeds of approximately $1.9 billion under the American Rescue Plan Act of 2021. The Company has received $926 million, or 50 percent, of the expected proceeds and expects to receive the remaining proceeds during second quarter 2021. As of May 17, 2021, Southwest had cash and short-term investments of approximately $15.7 billion, well in excess of debt outstanding.
The airline continues to have unencumbered assets with an estimated value of more than $11 billion, including aircraft value estimated in the range of $9 billion to $10 billion, and approximately $2 billion in non-aircraft assets such as spare engines, ground equipment, and real estate. In addition to the value from aircraft and other physical assets, Southwest has significant value from its Rapid Rewards loyalty program.