Southwest Airlines Co (NYSE:LUV) says it has enough stockpile of cash to finance its operations for the next two years as booking levels continue to fall in wake of the pandemic. The airline says even the recent uptick in passengers is not enough to cover up for the 65% to 70% revenue drop in July.
In a regulatory filing, the airline said it will spend between $20 million to $25 million per day during the second quarter. The reduction in cash burn has improved passenger bookings and the company’s efforts to cut costs. Despite the increase in bookings, the planes are less than half full, and the airline expects the drop in profits to go on for some time.
Improvement in Bookings in June
This assessment is based on the company’s cash as well short-term investments of around $13.9 billion. The airline added that the current estimates of its capacity, operating revenue, and load factor in June have improved compared to previous estimates. Southwest has since revised its predictions for operating revenue between 70% and 75% of last year. On the other hand, passenger capacity and load factor are expected to shrink by 40% to 50% compared to the same period last year.
Load factor is the term used to describe the percentage of seats available and filled with passengers. The company projects improvements in July with more seats filled on flights and revenue. Southwest says it will keep its middle seats empty up to atleast September 30. The move will help prevent the spread of coronavirus.
The airline expects its daily cash spending to be between $30 million and $35 million in the second quarter. The company had initially projected a 60% drop in capacity compared to a year ago. On the other hand, American Airline said it is implementing cost-cutting measures plus improvement in travel demand to halt its daily cash burn.