Dallas-based Southwest Airlines has posted a net loss of $94 million during the first quarter of the year, marking its first loss since 2011, according to its latest earnings report.
Operating revenues were down by about 18% from the year before, now at $4.2 billion. The company attributed this mainly to the "sharp decline" in bookings and demand that began in February and a record number of cancellations in March.
The airline industry has struggled during the COVID-19 pandemic as travel has dropped while people around the world stay home and shelter in place.
As a part of the Coronavirus Aid, Relief and Economic Security, or CARES, Act that was passed in March in response to the virus, Southwest will receive about $3.3 billion from the federal government.
The money is a part of the Payroll Support Program included in the CARES Act. The company will get $2.3 billion in direct payroll support, along with $948 million in an unsecured 10-year loan, officials said.
As part of the bailout measure, the U.S. Treasury can purchase about 2.6 million shares of its common stock in return.
"This is an unprecedented time for our nation and the airline industry. In late February, we began experiencing a precipitous drop in passenger demand and bookings due to the novel coronavirus COVID-19 pandemic, resulting in a first-quarter 2020 net loss," Southwest CEO and chairman of the board Gary C. Kelly said in a news release.
Kelly detailed how the company will protect itself as much as possible from "cash burn" by reducing salaries, suspending hiring and deferring capital spending to reduce costs by more than $3 billion for the year.
"The U.S. economy has been at a standstill, and the current outlook for second-quarter 2020 indicates no material improvement in air travel trends," he said.
Though cancellations are slowing, they remain at "unprecedented levels," Kelly said. The airline has reduced flight schedules through July in response.
Southwest has 742 aircraft in its fleet but has stored 350 of them due to decreased demand. The company had previously grounded 34 Boeing MAX aircraft in March 2019 after two crashes that killed nearly 350 people.
The company expects weakened demand to continue and predicts its operating revenue will decrease by 90 to 95% for April and May compared to last year.
"We entered this crisis prepared with the U.S. airline industry's strongest balance sheet and most successful business model," Kelly said.
The CEO expects demand will rebound.
To read more from the company, click here.
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