Southwest posts first operating loss in 11 years - "only" $94 million

This morning, Southwest released their 2020 Q1 earnings report, and it wasn't as bad as analysts had estimated as the carrier lost "only" $94 million on revenue of $4.2 billion.  Analysts were expecting a loss upwards of $240 million on revenue of $4.4 billion.  However, it was still Southwest's first net operating loss in 11 years, dating back to the Great Recession in 2011.

Southwest's EPS (earnings per share) chart since 2016

Unsurprisingly, Southwest has warned that the current Q2 will yield even more miserable results.  Revenue for the months of April and May are expected to be down by at least 90% as the carrier only sold 6% of its seats to paying passengers in April.  Typically, a carrier needs to fill 75% of their seats just to break even, and we have seen what operating flights at 13% capacity has done to United, which lost $2.1 billion in Q1.

Like many of the other players in the U.S. airline industry, Southwest will be taking advantage of the federal bailout package in the form of a $2.3 billion grant and a low-interest loan of $948 million.  The company has already received half of their bailout at $1.6 billion, and still had $9.3 billion cash on hand as of last Friday. The carrier stated that they will likely burn through $900 million in April alone, though the bleeding may slow in May and June.

On news of the "not so bad" earnings report, Southwest's stock rose by 2% at today's close.  Other carriers joined in on the chorus, with United closing up 11%, Delta up 9.8%, and American up 12%.

Southwest's grounded fleet in Victorville, CA

More turbulence ahead?

It's actually not surprising to see Southwest's Q1 loss at "only" $94 million.  The carrier did well for the first two months of the quarter before completely tanking in the month of March.  Southwest also has the best managed fleet and incurs significantly less costs than other carriers by sticking with a single plane for all their flights: the Boeing 737.  This makes maintenance, training, and certification much simpler and more streamlined across the board for their entire fleet and staff.  Southwest also has more cash on hand due to 11 consecutive years of profits.

However, no amount of fleet efficiency is going to be able to counter the negative effects of the COVID-19 pandemic, which has taken an unprecedented toll particularly on the travel industry.  It may be many months and even years before flying resumes to "normal", and Southwest will likely need to burn through much more of their hard-earned cash as well as their bailout loans.

Bottom line

It's "good" to see that Southwest hasn't lost as much cash in Q1 as analysts have predicted.  However, the skies ahead will definitely be substantially worse as travel demand is currently at essentially zero, and Southwest continues to fly planes at 7% capacity.  United, which reports earnings this Thursday, has already warned of a net loss of $2.1 billion for Q1, so we'll see how the industry and their stocks respond to Thursday's earnings...errrr...loss report.

From all of us at Flying for Fitness, please stay healthy during this trying time.  We hope you enjoyed this post.  Please consider visiting one of our sponsors by clicking on the advertisements.  Our sponsors pay us for customer visits and help us to keep the lights on.  Thanks!


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