Before the markets opened on Jan. 28, Southwest Airlines Co. (LUV, Financial) reported its earnings results for the fourth quarter of 2020.
The U.S. domestic air carrier reported fewer net losses than expected, but revenue fell short of Wall Street's expectations. The stock gained 1% throughout the day's trading to close at $44.60.
Earnings results
In full-year 2020, Southwest recorded a loss per share of $6.22 compared to earnings per share of $4.27 in 2019. Meanwhile, revenue was $9.04 billion, down 59% from the previous year's $22.42 billion.
For the fourth quarter, Southwest reported an adjusted loss per share of $1.29 (compared to earnings per share of 98 cents in the prior-year quarter) and revenue of $2.01 billion (down 64% year over year). Analysts had been expecting a loss per share of $1.68 on revenue of $2.11 billion.
The average cash burn fell to approximately $12 billion per day for the fourth quarter. Southwest also launched service to six new destinations and announced its intentions to commence new service to eight additional airports in the first half of 2021, representing moves to gain market share as some other major competitors with weaker balance sheets cut down on service routes.
Southwest ended 2020 with $14.3 billion in liquidity and current and noncurrent debt obligations of $10.3 billion. Throughout the year, the company raised a total of approximately $18.9 billion, net of transaction fees, "including $13.4 billion in debt issuances and sale-leaseback transactions, $2.2 billion through a common stock offering, and $3.4 billion of PSP proceeds under the CARES Act."
Thanks to the combination of its stronger balance sheet relative to competitors, a good response to its call for employees to retire early or voluntarily take time off and the extension of federal payroll support for the airline industry, Southwest was able to avoid involuntary furloughs in 2020 and expects to continue to maintain its employment force in the first quarter of 2021.
Looking forward
Southwest expects average daily cash burn to increase to $17 billion in the first quarter of 2021 due to several headwinds, with Covid-19 cases continuing to increase and the holiday season no longer contributing to passenger volumes.
Chairman and CEO Gary Kelly had the following to say:
"Preparedness has always been a strength of Southwest Airlines. We came into 2020 well-prepared with the U.S. airline industry's strongest balance sheet and most successful business model…
We are aggressively pursuing new revenue streams by adding new airports to our route network and launching participation in global distribution systems (GDS) to grow our share of corporate travelers. We remain steadfast in managing costs and cash spending, and we are focused on maintaining significant liquidity. Our primary financial goals for 2021 are to preserve the strength of our balance sheet and investment-grade credit rating; arrest cash operating losses; and achieve and sustain break even, or better, cash flow and earnings as the airline business recovers."
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.
Read more here:
- American Airlines Spikes on Unexpected 4th-Quarter Earnings Beat
- Lam Research Beats Expectations Again on Wave of Semiconductor Demand
- AT&T's Strong 4th Quarter Overshadowed by Low Guidance
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
