(LUV) on Tuesday reported a $94 million loss in the first quarter, and CEO Gary Kelly warned the losses will get worse in May — projecting revenue to drop as much as 95%.
“Based on significant capacity reductions and shelter-in-place restrictions, the company currently expects the effects of the pandemic to impact its second quarter 2020 financial performance much more significantly than in first quarter 2020,” according to the report.
Here are key numbers from the report:
Revenue: $4.2 billion, down 17.8% year over year
Diluted loss per share: $.15
“Trip cancellations remain at unprecedented levels, though they have receded from their peak in March,” Kelly said. Southwest has cut its schedule 50% through July and grounded almost 50% of its 742 aircraft.
Southwest has $5.5 billion in cash and investments after lining up new lines of credit and reducing its annual operating costs by an estimated $2 billion, Kelly says. Southwest cut executive salaries, offered employees voluntary time-off and canceled capital projects.
‘This is bad and the future is uncertain’
Kelly assured Southwest’s 60,000 employees last week that their jobs were secure for the next five months. “But if things don’t improve dramatically over the June and July time periods, we will have to prepare ourselves for a drastically smaller airline,” he cautioned, though he added, “I am not predicting that.”
“We’ll likely have to make sacrifices to survive this. The imperative is to survive,” he said.
Southwest has already received $1.6 billion from the U.S. Treasury out of a total $3.25 billion it will get under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Of that sum, $2.3 billion is a direct payroll support grant and $947 million is an unsecured low interest loan.
Southwest will continue to pay employee salaries and benefits through Sept. 30 as a condition of the funding. “This doesn’t solve our problem though, it gets us through the next five months,” Kelly says.
The CEOs of Delta (DAL) and United (UAL) have warned their combined 190,000 employees that they will be smaller airlines after Sept. 30. Southwest may also have to cut jobs, according to Kelly. “If we do have to resort to downsizing our company and reducing our head count, we will start with volunteers,” he said.
That includes early retirement and voluntary furloughs. The airline has never cut pay or forced furloughs on employees in its 49-year history, but Kelly painted a dire picture of what could be coming. “If things don’t improve to the point we don’t stop burning through cash, then we will be forced to seek cuts in benefits and then in pay, and all of that to avoid involuntary furloughs,” he said.
At Delta, 37,000 employees have taken short-term unpaid leave to help the airline get through the crisis. United, which lost $2.1 billion in the first quarter, is expected to release the number of employees who have taken voluntary leave when it issues its first-quarter and second-quarter investor update after the market closes on Thursday, April 30. United will stream its first quarter earnings call at ir.united.com at at 9 a.m. CDT/10 a.m. EDT on May 1.
Adam Shapiro is co-anchor of Yahoo Finance’s On the Move.
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