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Southwest Airlines saw annual loss of $3.1 billion as pandemic gripped globe

It was the first annual net loss for the company since 1972, CEO Gary Kelly said in a statement.
Credit: AP
FILE - In this Monday, Nov. 23, 2020, file photo, people are seen wearing face masks to protect against COVID-19 while riding on a Southwest Airlines flight from Norfolk, Va., making its landing approach into Baltimore-Washington International Thurgood Marshall Airport, in Glen Burnie, Md. On Thursday, Dec. 3, 2020, the airline warned nearly 7,000 employees that they could lose their jobs unless labor unions accept concessions to help Southwest cope with a sharp drop in travel during the pandemic. (AP Photo/Julio Cortez, File)

DALLAS — Dallas-based Southwest Airlines reported a net loss of $908 million in the fourth quarter of the year, company officials announced on Thursday. The airline's total losses for the year amounted to a net of about $3.1 billion. 

It was the first annual net loss for the company since 1972, CEO Gary Kelly said in a statement within the company's earnings report.

"I am forever grateful for the heroic efforts and results by our people in the most challenging year since we began flying in 1971," he said. "Their hard work and adaptability last year did not go unnoticed, as Southwest was just named the #1 U.S. airline in the Wall Street Journal's annual ranking for 2020, which ranks airlines on key operational performance metrics."

Kelly noted in his statement how the COVID-19 pandemic "devastated the world," saying the travel and tourism industries were hit particularly hard.

"Our annual 2020 operating revenues declined approximately 60 percent, year-over-year," he explained, down to $9 billion. 

That remained the case in the fourth quarter, as operating revenues were down 64.9 percent year-over-year, down to $2 billion, which the report attributed to decreased demand due to the pandemic. 

Although the company had seen an increase in demand in October, that trend began to reverse in November as cases and hospitalizations due to COVID-19 spiked, along with new quarantine requirements and other new restrictions.

Southwest's report said leisure travel demand was "resilient" during the holiday season, though it still saw an increase in trip cancellations in November and December.

Capacity for 2020 dropped 34% year-over-year, Kelly said, after trip cancellations began to exceed new bookings in mid-March. The company reacted by reducing annual cash outlays by about $8 billion and implemented several programs to allow staff to take leave or retire early to reduce costs.

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"I sincerely appreciate the 15,000 Southwest Family Members who participated in those crucial programs to reduce our annual 2020 salaries, wages, and benefits expense by approximately $565 million," Kelly said.

The airline had announced plans in December to furlough around 6,800 employees this spring but contradicted that in its report, saying that with the federal government's extension of the payroll support program, the company does not plan to have any involuntary furloughs or pay cuts through 2021. 

The company was still able to end 2020 with a liquidity of $14.3 billion and about $12 billion in unencumbered assets, according to the CEO.

Kelly also said the airline is not planning to see much of a rise in passenger demand in the first quarter of the year, even as "vaccine availability should mark the beginning of the end of this pandemic."

For the first quarter of 2021, the company expects capacity to remain below year-over-year levels by about 35 percent, primarily due to the pandemic. Passenger demand is currently mainly driven by leisure travel, which the airline remains cautious about, the report said.

Southwest had seen an average core cash burn around $12 million per day in the fourth quarter and expects that to go up to about $17 million in the first quarter of 2021, according to the report.

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"While we hope to achieve cash burn break even in 2021, it is wholly dependent upon a substantial rebound in passenger traffic and revenue; and, it is difficult to predict the timing of such a rebound, especially with respect to business travel," Kelly explained. 

The company would need to have operating revenues bounce back to 60 to 70 percent of what they saw in 2019 to break even on its cash burn at this point, according to the report. That's about double its current levels.

Kelly also announced that the company will bring back into service the controversial Boeing 737 MAX starting on March 11. This decision comes after the FAA cleared the plane model to come back to U.S. skies in November as long as certain requirements were followed.  

"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," Kelly said. 

The company ended 2020 with 41 737 MAX 8 aircraft in its fleet, according to the report. But expects to receive 28 more 737 MAX 8 deliveries from Boeing by the end of 2021 based on its agreement with the manufacturer.

The airline is also "aggressively pursuing new revenue streams" by adding in new routes to its network and working to grow its share of corporate travelers. Throughout 2020, Southwest added routes to six new locations and announced plans to add another eight new airports to its routes.

Kelly added that the company's main goals for 2021 are to maintain a strong balance sheet, its investment-grade credit rating, stop cash operating losses and sustain a break-even or positive cash flow.

"The pandemic persists and travel demand remains depressed, but we celebrate our 50th year of service in 2021 with renewed hope and optimism about the future of Southwest Airlines," he said.

According to the earnings report, the company has so far seen "stalled demand" for January and February bookings, which officials believe is due to the high level of COVID-19 cases and hospitalizations. 

"Travel and tourism industries face an ever-changing environment as the pandemic evolves," Kelly said. "Nevertheless, our Employees have not wavered; rather, they have responded swiftly and with resolve."