Southwest Airlines Reports First Quarter Loss

In the past several days we’ve seen both Delta Air Lines and United Airlines report first quarter losses (of ~$534 million and ~$2.1 billion, respectively). Now Southwest Airlines has reported their results for the quarter.

Southwest reports $94 million first quarter loss

Southwest Airlines has reported a $94 million loss for the first quarter of 2020, or a $77 million loss when excluding special items.

It’s interesting to see how load factors evolved over the first quarter:

• First quarter load factors decreased by 13.3% year-over-year, though the reduction was heavily focused on March
• In March 2020 the airline saw a 46.6% load factor, compared to 85.7% in March 2019
• In the second half of March 2020 the airline saw a load factor of about 20%

Here are some other interesting key figures:

• First quarter operating revenue was $4.2 billion, down 17.8% year-over-year
• First quarter operating revenue per available seat mile was 11.98 cents, down 11.8% year-over-year
• First quarter operating expenses were $4.3 billion, down 6.5% year-over-year
• First quarter operating expenses per available seat mile was 12.29 cents, up 0.2% year-over-year
• First quarter revenue yields increased by 4% year-over-year
• Southwest will get $3.3 billion under the Payroll Support Program (PSP), including $2.3 billion in direct payroll support and $948 million in unsecured 10-year loans
• Since the beginning of 2020, the company has bolstered cash on hand by $6.8 billion
• Southwest ended the first quarter with 742 aircraft, though approximately 350 are now in long-term storage

Southwest lost $94 million in the first quarter

Southwest’s second quarter outlook

We should expect the second quarter to be way worse for airlines than the first quarter.

While it feels like we’ve been sheltering in place forever, data shows that passenger traffic in the US really only started decreasing materially as of March, while it’s likely demand will be extremely limited for most of the second quarter.

Southwest notes that they continue to experience weak passenger demand and bookings for the future.

For April 2020, Southwest Airlines is expecting:

• Operating revenues to decrease 90-95% year-over year
• Available seat miles to decrease 60% year-over-year
• Load factors are expected to be 6%

For May 2020, Southwest Airlines is expecting:

• Operating revenues to decrease 90-95% year-over year
• Available seat miles to decrease 60-70% year-over-year
• Load factors are expected to be 5-10%

Southwest makes it clear that because of uncertainty they can’t make any estimates beyond May 2020.

One interesting thing that has differentiated Southwest from other airlines is that they haven’t cut capacity nearly as much. This is probably at least partly because they operate more point-to-point flights, rather than a hub-and-spoke system, so it’s tougher for them to cut capacity without eliminating destinations.

Southwest is expecting load factors of 5-10% in the second quarter

Bottom line

The first quarter was rough for Southwest Airlines, though it was for just about all airlines. Southwest’s losses in the first quarter were significantly smaller than what has been reported by Delta and United.

The big question will be what the second quarter will look like, as it’s likely to be the roughest for airlines.