Southwest Airlines has reported a first quarter 2021 net loss of $1bn, or $1.72 loss per diluted share. First quarter net income declined to $116 million, driven by a $1.2 billion offset of salaries, wages, and benefits expenses from the extended Payroll Support Program (PSP Extension).
Southwest ended the first quarter with liquidity2 of $15.3 billion, well in excess of debt outstanding of $10.8 billion
Gary C. Kelly, Chairman of the Board and Chief Executive Officer, said that the company was grateful for “much-needed federal payroll support on the heels of substantial losses in 2020, and ongoing non-GAAP losses in first quarter 2021”.
Kelly added that although the pandemic wasn’t over, he believes the worst is over in terms of the severity of the negative impact on travel demand. “Vaccinations are on the rise, and COVID-19 hospitalizations in the United States are down significantly from their peak in January 2021. As a result, we are experiencing steady weekly improvements in domestic leisure bookings, which began in mid-February 2021.”
In March 2021 operating revenues decreased 9.7%, year-over-year, and decreased 53.5% compared with March 2019, which represents a significant improvement from relatively stagnant revenue levels experienced by the airline from September 2020 through February 2021.
“Our current outlook for operating revenues indicates a sequential improvement from March to April 2021, and again from April to May 2021, based on improving bookings,” said Kelly. “We believe there is significant pent-up demand for leisure travel and are optimistic about summer 2021. In response, we are in the process of adding flights in June 2021, and we currently expect June available seat miles (ASMs, or capacity) to be only slightly less than June 2019 pre-pandemic levels.”
First quarter 2021 total operating expenses decreased 57.3 percent, year-over-year, to $1.9 billion. Excluding special items, first quarter 2021 operating expenses decreased 23.5 percent, year-over-year, to $3.3 billion. Total operating expenses per ASM (CASM, or unit costs) decreased 34.9 percent, compared with first quarter 2020.
Southwest’s average core cash burn was approximately $9 million per day in March 2021, and approximately $13 million per day in first quarter 2021. The airline’s average core cash burn in second quarter 2021 is currently estimated to be in the range of $2 million to $4 million per day. Kelly said that based on current booking trends and cost outlook, Southwest could achieve breakeven average core cash flow, or better, by June 2021.
Southwest estimates its total contractual aircraft capital expenditures for all years 2021 through 2026, which are associated with 169 MAX firm orders (135 MAX 7 and 34 MAX 8 aircraft), to be approximately $5.1 billion. The airline currently estimates approximately $700 million of aircraft capital expenditures in 2022, based on firm orders. It says that it has not yet finalized its 2022 fleet or capital investment plans.