Southwest Airlines reports rare loss, 17.8% dip in revenue

McCarran International Airport’s busiest commercial air carrier, Southwest Airlines, on Tuesday reported a rare loss in net income and a 17.8 percent decline in revenue as travel demand dropped as a result of the coronavirus pandemic.

The Dallas-based airline, which normally has 235 flights a day to 54 cities from Las Vegas and has more than 3,500 Las Vegas-based employees, has parked 350 of its 742-jet fleet of Boeing 737s while the company awaits a return of passenger demand.

Company executives also said they’ll be selling fewer seats on flights in the immediate future to promote inflight social distancing and that other usual standards will be affected by new procedures in response to the virus.

For the quarter that ended March 31, Southwest reported a net loss of $94 million, 18 cents a share, on revenue of $4.234 billion. That compares with net income of $387 million, 70 cents a share, on revenue of $5.149 billion for the same quarter a year earlier.

“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 Chairman and CEO Gary Kelly said in a statement announcing earnings.

“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,” Kelly said. “Trip cancellations remain at unprecedented levels, though they have receded from their peak in March.”

Executive salary cuts

For now, Kelly said the company has reduced executive officer salaries and board of director cash retainer fees by 20 percent; suspended all hiring and noncontract salary increases; implemented voluntary time-off programs; canceled or deferred hundreds of capital spending projects; modified vendor and supplier payment terms; and cut all nonessential spending.

Kelly also said that this month, Southwest reached an agreement in principle with the U.S. Treasury Department for $3.3 billion under the Payroll Support Program as part of the CARES Act, with $2.3 billion in direct payroll support and $948 million in an unsecured 10-year term loan. The company is expected to issue warrants that enable the U.S. Treasury to purchase up to 2.6 million shares of Southwest common stock.

The company also suspended its dividend and stock buyback programs.

Southwest has been critical in delivering tourists to Las Vegas since January 1982 when it became the 15th city in the airline’s system. In 2019, the airline served more than 17 million passengers in the Las Vegas market. It’s the third-busiest airport in Southwest’s system.

In question-and-answer sessions with analysts and journalists, Kelly said Southwest hasn’t adopted rules requiring passengers to wear masks on flights, although flight crews will wear them and have them available to passengers who request them.

Mandatory masks

Southwest rival JetBlue Airways imposed a mandatory requirement for passengers to wear masks on its flights.

Southwest is expected to sell around 67 percent of the seats on flights to allow center seats on planes to be empty and allow passengers to sit farther apart from each other. Kelly said he doesn’t expect to establish a mandate that center seats remain open since families often occupy entire rows on flights.

The airline also has temporarily ended snack and beverage service on flights. It has begun an intensive aircraft cleaning routine with surface wipe-downs after every flight and the use of electrostatic misters to spray through aircraft every day.

Kelly said it will be important to regain confidence from the public for flying before the airline can expect pre-COVID passenger levels. He said he expects the modifications of flight procedures to be temporary.

Southwest shares on Tuesday closed up 58 cents a share, 2 percent, to close at $29.69 a share on volume nearly six times the daily average. After hours, the issue climbed another 12 cents, 0.4 percent, to end at $29.81 a share.

Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on Twitter.