Southwest Airlines has warned that it looks unlikely to turn a profit by the end of the year. The airline’s CEO spoke in an interview with the Texas Tribune on Wednesday and said that some sectors of its demand could take at least a decade to recover to 2019 levels fully. The forecast losses dampen a 48-year profitability spell.
Southwest loses out on annual profit
Airline financials this year are, understandably, not looking as strong as they did at this point in 2019. Though some airlines have been able to make small wins along the way, like Southwest Airlines, the overall picture is gloomy. Predictions for end-of-year financials will be much lower than hoped.
Earlier this week, Southwest Airlines CEO Gary Kelly shared that he was not expecting his airline to turn any profit by the end of the year. By contrast, he envisaged that there would be a long road ahead for the airline before it can recoup profits and demand. Kelly said that the business travel sector of the industry would not fully recover for another 10 years.
We’re only halfway through the year, but the optimism for change is dissipating. If Gary Kelly is correct, 2020 will go down on record as the one that broke a 48-year wave of profitability that started back in 1972.
First-half losses foreshadow the future
While the airline cannot say precisely how much it plans to lose this year, existing figures for the first half of 2020 provide a good indication.
In the first quarter of 2020, Southwest Airlines has made a net loss of $94m. Its operating revenue was down 17.8% year on year. Fast forward a few months and things got a lot worse. Last month, the airline posted its second-quarter financials in which it said its operating revenue was down 82.9% year on year. What’s more, it has accumulated a net loss of $915m in the second quarter.
Southwest Airlines had hoped that things would pick up after the supposed peak of the coronavirus outbreak. However, while it did receive more bookings in May and June, those sales stagnated last month as COVID-19 outbreaks increased.
Gary Kelly shared that it was unlikely Southwest would see a revival of previous booking uptake until the virus was under control. In a press release on July 23rd, he said,
“We expect air travel demand to remain depressed until a vaccine or therapeutics are available to combat the infection and spread of COVID-19.”
What’s next for Southwest Airlines?
Well, while the future might look bleak, Southwest Airlines is not sitting around and waiting for something to change. Like many airlines the world over, it’s taken measures into its own hands. Already it has been able to reduce its cash burn from $30m a day in April to $23m a day in July.
However, it’s also holding out for a second CARES act. Gary Kelly said in a video statement on July 31st,
“I’ll continue to stay involved as Congress and the Administration work on the [CARES Act 2.0] bill, and we will give careful consideration of whatever is proposed during the negotiations that may impact our company.”
Receiving a six-month extension on the existing CARES Act could help Southwest Airlines with its payroll support to avoid the dismissal of employees due to the current climate.
What do you make of this story? Let us know your thoughts in the comments.
