Southwest Airlines needs ‘business to double in order to break even,’ CEO says

Southwest Airlines needs ‘business to double in order to break even,’ CEO says

Southwest Airlines CEO Gary Kelly said despite some modest improvements in late July and August “passenger demand remains inconsistent and difficult to forecast and still at very depressed levels.”

More than five months into the COVID-19 pandemic, Kelly said planes will still be less than half full on average in September and that there still isn’t much demand from business travelers as the summer travel season transitions into fall.

“The bottom line result is terrible,” Kelly said. “We’ve got to find a way to eliminate these huge cash losses, and just get to the other side of this pandemic.”

Kelly shared the message in a video to employees made public Friday morning. Kelly and other airline executives continue to paint a bleak picture for the industry as fall approaches, a season when many expected traffic to be taking back off again after the COVID-19 pandemic handed the industry the worst financial crisis in commercial aviation history.

U.S. industry passenger traffic is still down more than two-thirds from a year ago and competing airlines are warning of furloughs and layoffs to come in a month without more government aid. Only 540,000 passengers went through TSA checkpoints Wednesday, down more than 75% from a year ago.

Kelly said there has been a recent uptick in traffic, but that may have been due to school starts being pushed back and more students in virtual schooling program.

“Historically, September is a heavier business travel month after Labor Day,” Kelly said. “And we still haven’t seen much activity from our business travelers, of course.”

Dallas-based Southwest was seemingly better positioned than other airlines with less debt and more domestic traffic, but the length and depth of the COVID-19 downturn is taking its toll. Kelly said the company recently cut schedules for August, September and October.

“It’s welcomed progress, but we’ll need our business to double in order to break even,” he said.

Southwest’s October capacity is expected to be down 40 to 50%, Kelly said. The company recently reduced its October flight schedule by 36%, or about 35,000 flights.

Southwest has promised to fill planes to only 65% capacity at max through October.

Still, Southwest is burning through $17 million of cash a day and expects to burn through $20 million a day during the third quarter. However, the carrier has about $15 billion in cash and short-term investments.

Southwest has said it won’t need to issue furloughs through the end of 2020, but the future depends on the continued recovery of the industry, which has slowed considerably during the last six weeks. About 28% of Southwest employees are taking voluntary leave or early retirement, the company previously reported.

An American Airlines employee waits to help the next passenger check luggage in Terminal A at DFW International Airport.