Southwest states that it continues to experience significant year-over-year negative impacts to passenger demand and bookings due to the COVID-19 pandemic. Following several months of modest improvements in close-in leisure passenger demand, Southwest experienced a deceleration in improving revenue trends in November 2020 due to a spike in COVID-19 cases, as well as renewed quarantine requirements, travel restrictions, and related government orders. The airline also experienced an increase in trip cancellations in the weeks prior to the Thanksgiving holiday travel period; although, leisure passenger demand was more resilient for the Thanksgiving holiday travel period compared with non-holiday weeks in November 2020.
Given the continued surge in COVID-19 cases and depressed revenue environment, however, Southwest reports a continuing softness in leisure passenger demand and bookings for December 2020, as well as elevated levels of trip cancellations for December travel. This softness in leisure passenger demand and bookings is expected to continue into January 2021. The airline reports that leisure bookings for holiday travel in late December 2020 and early January 2021 are “outpacing leisure passenger demand and bookings in non-holiday time periods for both months”.
Southwest remains cautious given the uncertainty of near-term revenue trends and expects its fourth quarter 2020 capacity to decrease approximately 40%, year- over-year. In addition to monthly capacity estimates provided in the table above, the airline currently estimates its February 2021 capacity to decrease in the range of 40 to 45 percent, year-over-year.
The airline is working to return its Boeing 737 MAX aircraft to service in March 2021 after all active pilots have received updated, MAX-related training. Southwest recently reached an agreement with Boeing to take delivery of the delayed MAX aircraft and currently expects to receive 35 MAX 8 deliveries, including 16 leased aircraft, through the end of 2021.
Taking into account planned retirements of its 737-700 aircraft, Southwest does not intend to grow its fleet in 2021, compared with its fleet of 747 aircraft as of December 31, 2019..
Southwest’s average daily core cash burn in November 2020 was approximately $13 million; the airline now estimates its average daily core cash burn to be approximately $12 million in fourth quarter 2020.
Southwest continues to have unencumbered assets worth approximately $12 billion, including approximately $10 billion in aircraft 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, the company has significant value from its Rapid Rewards loyalty program.