Southwest Airlines has today joined the throng of airlines reporting their earnings for 2020. The carrier posted a loss of $3.1 billion for the whole of 2020, $761 million of which was accrued in the fourth quarter. Nevertheless, Southwest has firmed up the date for the return of its beleaguered MAX aircraft, and will begin revenue service on March 11th.
The first annual loss since 1972
Southwest Airlines has posted its first annual loss since 1972, notching up a total negative figure of $3.1 billion. Overall, operating revenues declined by 60% year on year as a result of the devastating impact of COVID. Gary Kelly, Chairman and Chief Executive, said,
“The COVID-19 pandemic devastated the world, and our heart goes out to all those affected. The airline industry was hit especially hard in 2020, and we incurred our first annual net loss since 1972.
“Travel and tourism industries face an ever-changing environment as the pandemic evolves. Nevertheless, our Employees have not wavered; rather, they have responded swiftly and with resolve … I am forever grateful for the heroic efforts and results by our People in the most challenging year since we began flying in 1971.”
The airline went into the pandemic from a position of strength, and experienced a good level of growth in January and February. However, the precipitous drop off in travel demand in late February saw things begin to grind to a halt, and by March, the number of cancellations was outstripping new bookings. In April, the airline experienced its largest-ever monthly decline in operating revenues, as it absorbed a 92% hit year on year.
Over the year, capacity was down 34%, forcing the airline to trim its projected expenditure by an impressive $8 billion. Nevertheless, cash burn remains at around $12 million per day, and the airline expects it to get worse before it gets better. Kelly stated that, in Q1 of 2021, it expects cash burn to rise to $17 million a day as a result of “continued softness in demand and a seasonally weaker travel period in January and February 2021.”
Despite this, Southwest expects to break even in 2021, but notes that this is entirely dependent on a substantial rebound in passenger traffic. If things go in its favor, the airline hopes to restore around 60 – 70% of 2019 levels in terms of its capacity, which is roughly double what it is flying right now.
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The MAX comes back in six weeks
Since the FAA recertified the MAX to fly in November, Boeing’s biggest customer for the type has been notably absent in operating revenue flights. Nevertheless, it is working hard towards returning the aircraft to revenue operations, and will bring it back in just six weeks’ time.
Kelly expressed confidence in the aircraft, noting that Southwest is taking its time to undertake all the necessary preparations to return the type to service. He confirmed that the return date would be March 11th, and that every active pilot would receive the training necessary to fly the aircraft. He commented,
“I recently had the opportunity to fly on one of our MAX operational readiness flights, which only reaffirmed my supreme confidence in Southwest’s ability to operate the MAX safely. I am very proud of our many Teams who are working diligently to prepare us for returning the MAX to revenue service on March 11, 2021, once all FAA requirements are met and all active Pilots have received updated, MAX-related training.”
The airline confirmed that 35 MAX aircraft would be delivered by the end of 2021, seven of which were already delivered in December. While its compensation agreement with Boeing remains confidential, the company estimates an ‘immaterial’ amount will be spent on aircraft in 2021, leading to a CAPEX of no more than $500 million for the year.
Southwest appears to be still contemplating its delivery schedule for the rest of the outstanding MAX order, totaling 230 firm with another 115 options. It said it “continues to evaluate its longer-term fleet needs and continues discussions with Boeing to restructure its order book beyond 2021.”