Bailout helps Southwest become the first US airline to post a profit during the pandemic
This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. Terms apply to the offers listed on this page. For an explanation of our Advertising Policy, visit this page.
Airlines have largely managed to slow or stop burning cash as travel demand begins to return, but the path to actually becoming profitable again is still a long ways uphill.
Except for Southwest.
The airline reported a $116 million profit for the first quarter on Thursday, making it the first U.S. airline to report net income for a quarter since the beginning of the COVID-19 crisis.
Want more airline-specific news? Sign up for TPG’s free new biweekly Aviation newsletter!
Despite an improvement in current demand and future bookings, however, the profit comes with a big asterisk. It was facilitated by federal aid distributed during the first three months of 2021.
Without the aid, the airline would have posted a loss of about $1 billion.
Still, other U.S. airlines reported losses for the quarter despite also receiving the aid. American Airlines said on Thursday that it lost $1.25 billion in the first quarter.
“The pandemic is far from over. We have to continue to fight like never before and ensure that when the green flag drops, American is out in front.” American Airlines CEO Doug Parker and President Robert Isom said in a note to employees on Thursday. “But as our world makes daily strides in COVID-19 vaccination efforts, customers are returning to travel and there is no doubt the pace of the recovery is accelerating.”
Improvements in travel demand, both in the form of immediate travel, and forward bookings for spring and summer, began to climb towards the end of the quarter as an accelerated pace of the vaccination campaign triggered a fresh wave of optimism among consumers.
Each major U.S. airline has said that bookings began to climb in March, leading to positive cash flow, short-term profitability, or a reduction in cash burn rates for the month.
One thing that helped: that new consumer optimism also coincided with spring break.
“Overnight we increased our flight activity mid-March, I think it was about March 11, by 50%,” CEO Gary Kelly said on CNBC Thursday morning. “We added 1,000 flights a day.”
Notably, the surging demand is almost entirely among leisure travelers and those visiting friends or relatives, rather than business travelers. Those customers, who tend to be more price conscious, generate lower yields for airlines. Business travel is not expected to begin returning substantially until the end of this year or 2022.
“We would be foolish to plan for a quick recovery of business travel,” Kelly said.
“The good news about Southwest,” he added, “is that we’re a low-cost business model. We’re very well suited for this environment. We’re certainly in a position where we can be prosperous and profitable with mostly leisure travel.”
Southwest also benefits from less exposure to the long-haul international market than its competitors, which rely on sales of highly profitable premium seats on trans-oceanic flights.
The airline plans to restore 85% of its pre-pandemic capacity in the second quarter.
Most U.S. airlines benefited from aid under the Payroll Support Program under the CARES Act. Southwest has received more than $5 billion in aid since April 2020, according to Treasury data, of more than $64 billion given to the industry in the form of grants and low-interest loans.
Featured photo by Robert Smith/MI News/NurPhoto via Getty Images
Welcome to The Points Guy!
Earn 90,000 bonus miles after you spend $3,000 in purchases on your new Card in your first 3 months. Offer ends 8/3/2022.
With Status Boost™, earn 10,000 Medallion Qualification Miles (MQMs) after you spend $25,000 in purchases on your Card in a calendar year, up to two times per year getting you closer to Medallion Status. Earn 3X Miles on Delta purchases and purchases made directly with hotels, 2X Miles at restaurants and at U.S. supermarkets and earn 1X Mile on all other eligible purchases. Terms Apply.
- Limited Time Offer: Earn 90,000 bonus miles after you spend $3,000 in purchases on your new Card in your first 3 months. Offer ends 8/3/2022.
- Earn up to 20,000 Medallion® Qualification Miles (MQMs) with Status Boost® per year. After you spend $25,000 in purchases on your Card in a calendar year, you can earn 10,000 MQMs up to two times per year, getting you closer to Medallion® Status. MQMs are used to determine Medallion® Status and are different than miles you earn toward flights.
- Earn 3X Miles on Delta purchases and purchases made directly with hotels.
- Earn 2X Miles at restaurants worldwide including takeout and delivery in the U.S., and at U.S. supermarkets.
- Earn 1X Miles on all other eligible purchases.
- Receive a Domestic Main Cabin round-trip companion certificate each year upon renewal of your Card. Payment of the government imposed taxes and fees of no more than $80 for roundtrip domestic flights (for itineraries with up to four flight segments) is required. Baggage charges and other restrictions apply. See terms and conditions for details.
- Enjoy your first checked bag free on Delta flights.
- Fee Credit for Global Entry or TSA PreCheck® after you apply through any Authorized Enrollment Provider. If approved for Global Entry, at no additional charge, you will receive access to TSA PreCheck.
- Enjoy an exclusive rate of $39 per person per visit to enter the Delta Sky Club® for you and up to two guests when traveling on a Delta flight.
- No Foreign Transaction Fees.
- $250 Annual Fee.
- Terms Apply.
- See Rates & Fees