Southwest Airlines says the significant cost-cutting efforts it has made to overcome the Corona crisis means it will turn down a $ 2.8 billion loan under the CARES Act that it has agreed with the US Treasury last month. Instead, the Dallas-based airline believes it could get additional financing at great rates if needed without resorting to a government-guaranteed loan.
But in an investor update released on Wednesday, Southwest says it continues to face “significant negative impacts” on customer demand caused by the COVID-19 pandemic. Operating revenues fell 70-75% in July, while capacity remains capped at nearly 70% of pre-COVID levels.
The improvements in demand seen by Southwest and other US-based airlines in May and June have since come to a halt after an increase in the novel coronavirus in some states prompted authorities to rethink plans to reopen. There were “modest” improvements in August, but booking trends remain inconsistent.
Despite continued uncertainty, Southwest says revenue and load factor targets for August are now slightly higher than previous estimates. Income could decline year over year by 70-75%; capacity has been reduced by 27%, and the occupancy factor (the number of seats occupied on a given flight) will fluctuate between 40 and 45%.
By comparison, the airline previously estimated that revenues could drop as much as 80% and load factors as low as 30%. The capacity, however, remains lower than previous estimates. Theft charges remain capped until October 31 to allow social distancing on board.
Driven by leisure travelers, the Southwest continues to see “modest” improvements in forward bookings for September, but with many tickets sold at bargain prices, revenues will continue to decline.
Despite recording a daily consumption of $ 23 million, Southwest will refuse government support in the form of a CARES Act loan. Southwest chief executive Gary Kelly previously called the terms on loans “onerous” and said they would put competitors at a disadvantage.
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