As a result of summer travel being crippled by the Covid-19 pandemic, Southwest Airlines Co. (LUV, Financial) posted its biggest loss ever when it reported third-quarter results before the opening bell on Thursday.
The Dallas-based airline recorded a net loss of $1.2 billion, which dropped from a profit of $659 million a year ago. The company also posted adjusted earnings of $1.99 per share, which topped Refinitiv analysts' estimates of a $2.35 loss. While revenue declined 68% from the prior-year quarter to $1.79 billion, it still eclipsed expectations of $1.7 billion. Revenue per available seat mile fell 52.7% to 6.78 cents.
The market did not seem phased by the airline's loss, however, as the stronger-than-expected sales led to shares rising nearly 1% in premarket trading.
Southwest was also able to cut it cash burn from $23 million per day in the second quarter to an average of $16 million per day for the three months ended Sept. 30. The airline noted that in order to break even, operating revenue needs to recover to 60% to 70% of 2019 levels. This equates to double what its sales were in the third quarter.
While Southwest Chairman and CEO Gary Kelly said he is "encouraged by modest improvements in leisure passenger traffic trends," he warned a recovery is still far off.
"However, until we have widely-available vaccines and achieve herd immunity, we expect passenger traffic and booking trends to remain fragile," he added. "In response, we will continue to monitor demand and prudently adjust our available seat miles (ASMs, or capacity), while pursuing further revenue and cost opportunities."
Based on new research that found "the risk of breathing Covid-19 particles on an airplane is virtually non-existent," Kelly said the company also plans to stop blocking middle seats in December, a practice several airlines have undertaken in an effort to help maintain social distancing measures for travelers.
"We are pairing this change with enhanced flexibility for Customers on fuller flights to rebook to another flight, if desired," he added. "We are working with UT Southwestern Medical Center and the Stanford University School of Medicine, and we will have access to an advisory council comprised of physician-scientists with knowledge and expertise in infectious diseases, prevention and testing protocols, and the latest medical research about Covid-19."
Kelly also vowed he would continue to fight for additional economic relief in order to preserve jobs as the pandemic has continued to put pressure on the airline industry.
With a $24.2 billion market cap, shares were trading 3.21% higher on Thursday morning at $41.12. Year to date, GuruFocus estimates the stock has tumbled over 20%.
Disclosure: No positions.
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