CEO says Southwest Airlines is close to breaking even

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Southwest reported that load factors climbed rapidly in the first quarter, from 53.4% in January to 72.7% in March.
Southwest reported that load factors climbed rapidly in the first quarter, from 53.4% in January to 72.7% in March.

U.S. airlines have thus far been appropriated $58 billion in three rounds of federal payroll support since the Covid-19 pandemic began.

But Southwest CEO Gary Kelly doesn't envision asking for more.

"We believe we are on the cusp of breaking even," Kelly said during the carrier's earnings call Thursday afternoon. "It's hard for me to argue that Southwest would need any further support."

• Related: Delta CEO bullish on U.S.-U.K. summer travel

The carrier received $1.2 billion in federal aid during the first quarter, enough to offset other losses of more than $1 billion. Buoyed by the federal largesse, Southwest recorded positive net income for the quarter of $116 million, its first positive quarter since the fourth quarter of 2019.

Last year, Southwest received $2.3 billion in federal aid as part of the first payroll support authorization. A third round of payroll assistance will continue to offset employee salaries through September.

• Related: United says transatlantic leisure travel is recovering quickly

Those funds have allowed the airline to avoid any involuntary furloughs or layoffs during the pandemic, though many staffers did accept buyouts and early retirements. Currently, Southwest is at 92% of its prepandemic staffing, Kelly said. That's too many people based upon current needs but should be just about right for June, based on the airline's plan to be flying 96% of its prepandemic capacity by then.

Gary Kelly
Gary Kelly

For the first quarter, Southwest reported operating revenue of $2.05 billion, down 60.1% from the 2019 prepandemic baseline. But revenue improved sequentially through the quarter on a year-over-year basis and was down 53.5% this March compared with March 2019. Load factors also climbed from 53.4% in January to 72.7% in March.

The improvement came as Southwest experienced a surge of domestic and especially leisure demand in mid-March, causing it to increase its flying by 1,000 daily departures, or approximately 50%, overnight, Kelly said.

• Related: American Airlines says fares are rising quickly

Looking ahead, Southwest expects operating revenue to reach 60% to 65% of 2019 by May, with load factors jumping to between 75% and 80%.

Nevertheless, yields, defined as the amount passengers pay on average per mile of flying, continue to languish, due largely to the continuing dearth of corporate travel, which Southwest president Tom Nealon said remained down 88% during the first quarter compared to prepandemic. Yield for the first quarter was down 28.4% year over year.

Kelly said he's prepared for a very low-fare environment for a long time to come. But he also said Southwest could handle such a scenario.

"We can live on low fares," he said.

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