In updated guidance, Southwest Airlines has confirmed that May 2021 operating revenues performed in line with its expectations, at the better end of its guidance range, and represented a sequential increase compared with April 2021, driven primarily by improvements in leisure passenger traffic and fares.
Southwest states that it continues to expect another sequential improvement in operating revenues in June 2021 compared with May 2021, also driven primarily by expected improvements in leisure passenger traffic and fares, with June 2021 operating revenues now expected to be at the better end of its previous guidance range.
Based on current bookings, Southwest says that its leisure fare levels in June and July 2021 are comparable with June and July 2019 levels, and adds that it has also continued to experience modest, consistent improvements in business passenger demand and bookings. May 2021 business revenues were down approximately 77 percent compared with May 2019, which represented continued sequential improvements compared with down 80 percent in April 2021, down 85 percent in March 2021, and down 90 percent in February 2021, all compared with their respective 2019 levels.
Southwest expects this lag in business travel recovery to continue to have a negative impact on close-in demand and average passenger fares in second quarter 2021.
Southwest expects its second quarter 2021 capacity to increase approximately 87 percent, year- over-year, and decrease approximately 16 percent compared with second quarter 2019. The company currently expects its August 2021 capacity to increase approximately 39 percent, year-over-year, and to be comparable with August 2019.
Southwest has received the second disbursement of approximately $926 million of payroll support funding under the American Rescue Plan Act of 2021, totaling the full $1.9 billion of expected payroll support under this program. As of June 7, 2021, Southwest’s liquidity was approximately $16.6 billion, well in excess of debt outstanding. Its adjusted debt to invested capital (leverage) is currently 57 percent, and it remains the only U.S. airline with an investment-grade rating by all three rating agencies.
Southwest now estimates its average core cash burn (which excludes changes in working capital) to be in the range of $1 million to $2 million per day in second quarter 2021.
Southwest has boosted its MAX orderbook with a supplemental addition to its 2022 firm orders of 34 737 MAX 7s, increasing the airline’s number of firm orders for the aircraft to 234. Southwest has also accelerated 32 options into 2023, 16 options into 2024, 16 options into 2025, and added 32 new options into 2026 through 2027, bringing the total firm and option order book to 660 aircraft.
Southwest will take delivery of 28 MAX 8s this year, with 64 MAX 7s and 40 MAX 8s expected in 2022 (see image for new 737 delivery schedule).
In a market update, Southwest states that it continues to estimate its 2021 total capital expenditures to be approximately $500 million, with minimal aircraft capital spending, and now expects its contractual aircraft capital spending to be approximately $1.5 billion in 2022, compared with its previous guidance of approximately $700 million.
Southwest adds that its fleet and capacity plans will “continue to evolve as the company manages through this recovery period”. The airline says that it will also continue to evaluate its remaining 40 MAX options in 2022 and notes that it plans to retire 30 to 35 of its Boeing 737-700 aircraft annually, on average, over the next 10 to 15 years. The speed of its fleet modernization efforts could be accelerated, says Southwest, if growth opportunities do not