Southwest Airlines could cut cities without additional coronavirus aid

Southwest Airlines CEO Gary Kelly has lined up with his peers at American Airlines and United Airlines threatening possible cuts to its route map if losses continue and there's no additional federal coronavirus relief.

"If we continue to face quarterly losses like we would have had without the payroll support, then we'll have to be creative to mitigate those losses — and that could include cutting service," Kelly told CNBC on Wednesday.

Southwest stands apart from its competitors having not cut any U.S. domestic cities from its map since the pandemic began. However, if airlines do not receive additional payroll assistance from Congress by Oct. 1, Kelly's comments suggested that the Dallas-based carrier could join its peers in cutting service in order to regain its financial footing.

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U.S. airlines, labor unions and trade group Airlines for America (A4A) are in the midst of an 11th-hour push for as much as $28 billion in additional aid for staff. The funds would be used exclusively for employee payroll and would bar carriers from the tens of thousands of furloughs that loom over the industry if protections under the first federal aid package, or CARES Act, expire as scheduled on Sept. 30.

In addition to barring furloughs, rules governing the relief would also extend a mandate that airlines continue to fly to most of the cities that they flew prior to the pandemic through March. This would keep flights intact for many small communities potentially facing a looming loss of commercial flights as few travelers take to the air.

Air travel remains down significantly compared to last year. The latest data from A4A shows U.S. domestic passenger volumes down 66% during the week ending Sept. 20 compared to 2019.

Related: American, United say flights to small cities are at risk unless Congress extends payroll program

Exclusive TPG Q&A: Southwest CEO Gary Kelly chats about his legacy, new cities and change fees

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Airlines have cut schedules commensurately while maintaining flights to nearly all domestic destinations. Southwest is scheduled to fly about 55% of what it flew a year ago in October, according to Cirium data.

"Believe it or not, that's where the industry is domestically: 1970s levels of traffic," said Kelly.

One thing holding Southwest back from making further cuts is connectivity. The airline has already pruned many nonstop flights from its schedule, leaving every U.S. city served. But some are now served only via eight key bases across the country, including Baltimore/Washington (BWI), Denver (DEN) and Phoenix (PHX).

Further cuts could jeopardize this connectivity, Kelly said.

Related: Southwest CEO says Miami push part of long-term strategy, not 'pandemic play'

Still, with the specter of Southwest's first annual loss since 1972 looming, anything to improve the financial outlook is on the table. The airline's priority is to stem daily losses that amount to roughly $17 million a day in the third quarter — something it hopes to achieve by the end of the year or early 2021.

In an effort to capture additional travel dollars, Southwest is adding three new cities to its map by year-end: Miami (MIA), Palm Springs (PSP) and Steamboat Springs, Colorado (HDN). Kelly has said these cities are part of the airline's long-term growth strategy and not "pandemic plays," with COVID-19 an opening to add them sooner rather than later with idled jets.

Still, neither Kelly nor anyone in the industry knows when flyers will return in significant numbers. And they must return before airlines can get out of crisis mode and return to profitability.

"There's no reason things are going to improve anytime soon," Kelly said.

Related: Southwest is using the coronavirus to solidify its dominance in California