Southwest Airlines (LUV) - Get Report posted its biggest quarterly loss ever as the coronavirus pandemic continues to pummel air travel, though said it was retaining cash as it continues to both cut costs and trim back its critical cash-burn rate.
The Dal-based airline posted a third-quarter loss of $1.2 billion, or $1.96 a share, vs. income of $659 million, or $1.23 a share, in the same period a year ago. Excluding special items, Southwest lost $1.2 billion, or $1.99 a share.
Analysts polled by FactSet had been expecting a loss of $2.35 a share.
Third-quarter operating revenue was $1.8 billion, down 68% from a year ago. Southwest ended the third quarter with liquidity of $15.6 billion, consisting of cash and short-term investments of $14.6 billion and a secured revolving credit facility of $1 billion.
The airline’s cash-burn rate, a number carriers calculate that reflects how much cash they are using to continue operations despite losses, was approximately $16 million per day in the third quarter, an improvement from average core cash burn of approximately $23 million per day in the second quarter, “primarily due to improving revenue trends,” Southwest said.
October’s cash burn rate is currently estimated to be approximately $12 million per day, while fourth quarter 2020 is currently estimated to be approximately $11 million per day, “driven primarily by continued modest improvements in close-in leisure demand and booking trends, as well as cost savings from voluntary employee separation and leave programs,” Southwest said.
“While we continue to make progress on reducing cash burn, in order to achieve cash burn break even, we estimate operating revenues will need to recover to an estimated 60-70% of 2019 levels, which is roughly double our third quarter 2020 levels,” CEO Gary Kelly said.
Southwest said it has now offset its originally planned annual 2020 capital spending of approximately $1.4 billion to $1.5 billion, primarily due to re-negotiated deals for the delivery of new planes from Boeing (BA) - Get Report.
While encouraged by modest improvements in leisure passenger traffic trends since the slowdown in demand experienced in July, “until we have widely-available vaccines and achieve herd immunity, we expect passenger traffic and booking trends to remain fragile,” Kelly said.
Shares of Southwest were up 1.46% at $40.43 in trading on Thursday.