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Southwest reports ‘modest’ improvement in travel demand, turns down government loan

A Southwest Airlines jet.

Scott Olson | Getty Images News | Getty Images

Southwest Airlines on Wednesday reported “modest” improvements in passenger demand this month as vacationers booked last-minute trips despite the coronavirus pandemic.

The company is also turning down a $2.8 billion government loan, saying it can get financing elsewhere. Southwest and other airlines last month reached agreements for portions of the $25 billion in loans for struggling U.S. airlines in the CARES Act in March. Southwest raised $15.4 billion — $13.2 billion in debt and $2.2 billion in a stock sale — and received $3.3 billion in government payroll support.

The Dallas-based carrier expects its revenue to fall by 70% to 75% from August 2019, a slight improvement from its previous forecast of sales down as much as 80% from last year. It said planes were flying 40% to 45% full this month, better than the 30% to 40% it previously expected.

Cash burn for the third quarter will likely improve slightly to $20 million a day, up from a forecast of $23 million

Shares were up more than 3% in morning trading.

Still, booking trends are “inconsistent,” Southwest warned. After demand increases in May and June, booking improvements stalled along with the increase in coronavirus cases around the U.S., it said.

Bookings were slightly up for September, a positive sign for the carrier, which like all airlines has been preparing for the traditional post-summer slowdown on top of the pandemic’s devastating impact on demand. The airline, however, is preparing for deeper cuts to its schedule.

It said its September capacity will be about 40% less than last year, down from a previous estimate for a drop of no more than 25% year on year. For the third quarter, it now expects capacity to fall by 30% to 35%, worse than the 20% to 30% Southwest previously forecast. Southwest said it estimates its October capacity will be at about 40% to 50% of last year’s.

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