Southwest Says It’s Losing ‘Big Money’ on Every Flight

(Bloomberg) -- Southwest Airlines Co. is losing “big money” on every flight, raising the risk of worker furloughs in the longer-term despite billions of dollars in immediate aid from the U.S. government.

The biggest U.S. discounter is “appreciative” of the package of loans and cash assistance approved by the Senate and awaiting a vote in the House of Representatives, Chief Executive Officer Gary Kelly said Thursday. If approved and signed by President Donald Trump, the program would provide an option to secure cash “that’s at least accessible, and quickly and simply,” he said.

Airlines have been battered as the spread of coronavirus and related government-imposed travel restrictions have caused demand for flights to collapse. On March 25, security officials at U.S. airports screened just 239,000 passengers, down from 2.2 million a year earlier, according to trade group Airlines for America.

“The load factors are at levels we’ve never seen,” Kelly said in a video message to employees, referring to the proportion of seats filled on planes. “I can assure you we are losing money on every single flight, and big money. So that can’t be sustained indefinitely.”

American Air Says It’s ‘Deeply Grateful’ for Government Lifeline

Kelly said he’s a “firm believer” that in economic catastrophes the federal government must “flood the country with liquidity or cash to give people the means to get through this” and avoid bankruptcies across industries. Airlines are among those hardest hit by the crisis, he said.

Passenger airlines are eligible for as much as $25 billion in payroll support under the pending U.S. rescue program, with another $25 billion in loans.

The funds “come at a cost,” Kelly said. The government could require equity or other securities in return for cash to keep workers on the job. Other restrictions would apply, including restraints on executive pay.

‘Can’t Promise’

Southwest, which has never laid off workers or cut pay, doesn’t have plans for furloughs, but “I can’t promise that won’t happen,” Kelly said.

“We have opportunities to raise capital in the private markets, and now we also have that opportunity with the federal government,” Kelly said, “We are going to work hard to make a commitment not to furlough people anyway, but the government grant program could prove to be something that gives us a lot more confidence that we can follow through with that.”

Southwest earlier said it would shave capacity at least 20%, freeze hiring and offer leave to workers to reduce operating costs. The Dallas-based carrier secured a $1 billion term loan and drew down the full amount of an existing $1 billion unsecured revolving credit facility earlier this month.

©2020 Bloomberg L.P.

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