Southwest Airlines has reported a third quarter 2020 net loss of $1.2bn, with operating revenue of $1.8bn, down 68.2% year-on-year, on the back of a 32.8% reduction in capacity.
The airline ended the quarter with $15.8bn in available liquidity, which consists of cash and short-term investments of $14.6 billion and a fully available secured $1bn revolver. The airline still has $12 billion in unencumbered assets, including $10 billion in aircraft and $2 billion in non-aircraft assets such as spare engines, ground equipment, and real estate.
Chairman and CEO, Gary C. Kelly, said that despite the loss and the continued negative effects on air travel caused by the pandemic, he has been encouraged by “modest improvements in leisure passenger traffic trends since the slowdown in demand experienced in July” albeit he expects that demand to remain “fragile” until a vaccine is widely available.
Kelly also announced that the airline will resume the sale of middle seats onboard its aircraft from December based on scientific advise that it is now safe to do so while following other onboard precautions such as wearing masks.
Third quarter 2020 total operating expenses decreased 33.5%, year-over-year, to $3.2 billion. However, Southwest’s cash burn in Q3 was $16 million per day, which is expected to reduce to $11 million in the next quarter, driven by modest improvements in leisure demand and cost savings from voluntary employee leave programs. The airline needs operating income to reach 60 -70% of 2019 levels to achieve its cash burn breakeven point.
Southwest returned two leased 737-700 aircraft and retired one owned 737-700 aircraft during third quarter 2020, ending the quarter with 734 aircraft in its fleet. The airline expects to return three leased 737-700 aircraft during Q4 2020. Southwest has an agreement with Boeing to take no more than 48 MAX aircraft through December 31, 2021. The timeline and quantity of deliveries through 2021 is not yet finalised the airline is currently in discussions with Boeing to restructure its order book. Beyond 2021, Southwest has 217 firm orders and 115 options for MAX aircraft in its order book.
Southwest has on average 150 to 250 aircraft in storage or short-term parking, 100 aircraft in long-term storage, including 34 737MAX grounded in March 2019, and is managing the remaining 50 to 150 aircraft in short-term parking.
Southwest says that it will work closely with Boeing and the FAA to safely reintroduce the 34 MAX aircraft currently in its fleet into service but states that the aircraft type will likely remain out of it published flight schedules until at least second quarter 2021.
Looking forward, Southwest currently estimates October 2020 capacity to decrease by 45%; November 2020 capacity to decrease by 35% year-over-year; and December 2020 capacity to decrease in the range of 40 to 45%, year-over-year.