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Southwest Airlines CEO Gary Kelly said on Tuesday that business travel could take more than five years to return to 2019 levels, as the airline reported its first quarterly loss since 2011 amid an “unprecedented” and “breathtaking” crisis for the global airline industry.
The airline reported a net loss of $94 million in the first quarter of 2020 with total revenue of $4.23 billion, down 18% over the year before. Those losses all came in March, as bookings plummeted and cancellations skyrocketed, Kelly said in the airline’s earnings call with analysts.
Southwest predicts “no material improvement in air travel trends” this spring, according to a filing with the Securities and Exchanges Commission, saying it expects revenue to fall as much as 95% in May. It added that it is “unable to reasonably estimate trends beyond May 2020.”
The airline raised $6.8 billion in liquidity through debt and government assistance through the CARES Act. Kelly said that the airline plans to cut spending by over $6 billion in 2020, and that it expects to burn $30 million per day in April. The airline has about $9 billion in liquidity, including the new sources, and has about $8 billion in unencumbered assets, including aircraft.
Airlines and the broader travel industry have been hit particularly hard by the COVID-19 pandemic and associated financial crisis, as shelter-in-place orders, travel restrictions, and corporate travel suspensions have led to as much as a 97% drop in passenger demand. Customers have also refrained from booking travel in advance due to uncertainty over when restrictions will be loosened, and whether a so-called “second wave” outbreak will force them to be tightened again.
During an interview with CNBC Tuesday morning, Kelly said that if demand does not return quickly, the airline would have to shrink. Southwest has parked nearly 50% of its fleet as demand has dropped.
As the industry looks towards ways to convince passengers to fly again, Kelly said the airline would consider options such as leaving empty seats on planes or offering masks to passengers.
While analysts and airline officials have suggested that leisure travel may return before corporate travel, Kelly said it was hard to know when an uptick would resume.
“We have decent bookings in place for July, but we have no idea. We have no way to predict what cancellations will be,” he said. “And they’ve been very vigorous for the past seven weeks. We’ll be watching the demand for June, July, and August very carefully.”
Business travel, however, may take longer.
According to Kelly, past economic downturns have seen business travel take about five years to fully recover to pre-downturn trends. Although that provides a possible example, he said that this crisis is different than something like the 2008 financial crash or September 11, 2001 terrorist attacks.
“A lot of business travel is for large meetings or conventions, and I would suppose that those are going to be slow to come back on for 2021,” he said. “But I read predictions that things will be back to normal in 18 months, and I wouldn’t discount that as a possibility. I think what we’re trying to do is put ourselves in a position where we can react effectively in either direction.”
“Based on history, in a recessionary environment, it is a long recovery period for businesses. And it’s intuitive to me on why that would be,” he added. “This one feels like it could be worse.”
However, Kelly said he was optimistic that business travel would fully recover in the long-term.
“I know a lot of people are using Zoom and there there’s predictions that that will forevermore change meetings and I just don’t believe that,” he said. “And if you’re like me, I’m sick of these Zoom calls. I’m ready to go and talk to people face to face.”
Business travel makes up about a third of Southwest’s passenger traffic, Kelly said.
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