Southwest Airlines may cancel your flight on short notice as it 'tactically' trims more capacity
Southwest Airlines is cancelling some flights on short notice as part of an effort to further reduce capacity as nearly all demand for air travel has evaporated amid the coronavirus pandemic.
The Dallas-based carrier will "tactically" cancel flights with few bookings several days before they operate through June, Southwest president Thomas Nealon said during an earnings call on Tuesday. Only about 10% of the airline's scheduled flights will be cancelled in this way as part of an effort to further cull capacity.
"It's a lot easier to take capacity out than to put it back in," he said on why Southwest opted for close-in flight cancellations. Demand has hit record low levels with revenues down as much as 95% year-over-year in April and May, Nealon noted.
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The capacity cuts are needed. Southwest is fresh off its first quarterly pre-tax loss in over a decade, reporting a $144 million pre-tax loss during the three months ending in March on Tuesday. It has cut flying by up to 70% from previously published schedules in April, between 60% and 70% in May and roughly 50% in June.
Flights removed from Southwest schedules include those in "shoulder" periods, or before 7 a.m. and after 8 p.m. local time. In addition, it has reduced its popular Hawaii service to just two daily flights between Honolulu (HNL) and Oakland (OAK).
Despite the cuts, the airline only anticipates filling about 6% of seats in April, and between 5% and 10% in May. This is far below the more than 86% of seats that Southwest filled in the second quarter of 2019.
"To date, capacity cuts have not been enough," Cowen analyst Helane Becker on Southwest wrote on April 20. She added they they expected further cuts as demand sat near zero.
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Shelter-at-home orders and general fear of COVID-19 are keeping travelers at home. The Transportation Security Administration (TSA) has screened roughly 5% of the number of people as it did a year ago for over a week. One positive note: screening data suggests that travel demand has leveled off.
Southwest's cuts are not as deep as those are other airlines. Delta Air Lines will slash its April-to-June schedule by roughly 85%, and United Airlines plans to fly around just 10% of its schedule in June.
While May and June look bleak, Southwest is preparing several plans for the post-coronavirus recovery. Speaking during the call, CEO Gary Kelly described these as including one for a "U-shaped" recovery that sees demand slowly but continually rebound from the bottom, or a "L-shaped" recovery with the industry staying at the bottom for a while before traffic rebounds more quickly.
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"Hopefully by July, [or] August we will begin to see some improvement that would encourage us which plan to lock down on," he said.
The plan will include ways to shrink Southwest's 61,000-strong workforce. Kelly and other executives emphasized Tuesday that they are looking at voluntary options, including unpaid leave and early retirement packages, to offer staff before they move to forced reductions.
"Right now the bias is towards shrinking the airline some, not radically," said Kelly with a note of optimism.
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