Southwest Airlines is pulling back on its capacity plans for the next few months as it sees weaker-than-expected demand growth.
The carrier reported $1 billion in revenue for the second quarter of 2020, down 82.9 percent year over year. Even so, Southwest executives said they saw a "modest improvement" in demand, bookings and trip cancellation rates beginning in early May. This month, however, bookings have started to slow and cancellations once again have picked up, and Southwest now expects its July operating revenue will be down between 70 and 75 percent year over year. In an earlier forecast, Southwest had projected July revenue would be down between 65 and 70 percent year over year, according to a Cowen research note.
Additionally, Southwest projects its July cash burn will be $18 million per day, which would be about $2 million per day higher than June's average, albeit still vastly below the $30 million per day level seen in April, CEO and chairman Gary Kelly said.
"We'll have to work harder now and adjust August and September capacity in order to meet our goal of continued reduction in daily cash burn," Kelly said. "We were on a path to break even by the end of the year, and that is still my goal, but the first quarter [of 2021] may be more realistic."
Even with the weaker forecast, Kelly said Southwest does not intend to furlough or lay off employees nor cut pay or benefits through the rest of this year. Nearly 17,000 employees opted into voluntary time off and retirement programs, which recently passed their July 15 deadline, which translates to $400 million in lower costs in the fourth quarter alone, he said.
Southwest reported a net loss of $915 million for the quarter, compared with net income of $741 million in the second quarter of 2019.
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