Bailout helps Southwest become the first US airline to post a profit during the pandemic
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.
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."
For both airlines, the results reflected an improvement over the past few quarters, in line with what Delta and United have reported.
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."
Related: Keeping track of which countries are reopening? So is United, which is seeing a surge in bookings
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.
Related: Where you can go once you are vaccinated: A country-by-country guide
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.
TPG featured card
at American Express's secure site
Terms & restrictions apply. See rates & fees.
| 4X | Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 4X | Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 5X | New! Earn 5X Membership Rewards® points on prepaid hotel stays booked through AmexTravel.com or the Amex Travel App. |
| 3X | Earn 3X Membership Rewards® points on flights booked through AmexTravel.com, the Amex Travel App, or purchased directly from airlines. |
| 2X | Earn 2X Membership Rewards® points on prepaid car rentals booked through AmexTravel.com or the Amex Travel App and cruises booked and paid through AmexTravel.com. |
| 1X | Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases. |
Pros
- Valuable dining and food-related credits
- Flexible rewards with airline and hotel transfer partners
- Multiple travel and purchase protections
- No foreign transaction fees
- Access to Amex Offers for additional savings (enrollment required)
Cons
- Not as useful for those living outside the U.S.
- Some may have trouble using Uber and other dining credits
- You may be eligible for as high as 100,000 Membership Rewards® Points after you spend $8,000 in eligible purchases on your new Card in your first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply to know if you’re approved and find out your exact welcome offer amount – all with no credit score impact. If you’re approved and choose to accept the Card, your score may be impacted.
- Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- New! Earn 5X Membership Rewards® points on prepaid hotel stays booked through AmexTravel.com or the Amex Travel App.
- Earn 3X Membership Rewards® points on flights booked through AmexTravel.com, the Amex Travel App, or purchased directly from airlines.
- Earn 2X Membership Rewards® points on prepaid car rentals booked through AmexTravel.com or the Amex Travel App and cruises booked and paid through AmexTravel.com.
- Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases.
- Pay It® lets you tap in the American Express® App to quickly pay for small purchase amounts throughout the month and still earn rewards the way you usually do. Plan It® gives you the option to split up big purchases into equal monthly payments with a fixed fee. You’ll know upfront exactly how much you’ll pay.
- Updated! $120 Dining Credit: Earn up to a total of $10 in statement credits monthly when you pay with the Gold Card at Grubhub (including Seamless), Buffalo Wild Wings, Five Guys, The Cheesecake Factory, and Wonder. This can be an annual savings of up to $120. Enrollment required.
- $100 Resy Credit: Get up to $100 in statement credits each calendar year at over 10,000 qualifying U.S. Resy restaurants after you pay for eligible purchases with the American Express® Gold Card. That’s up to $50 in statement credits semi-annually. Enrollment required.
- $84 Dunkin' Credit: Earn up to $7 in monthly statement credits after you pay with the American Express® Gold Card at U.S. Dunkin’ locations. Enrollment required.
- $120 Uber Cash on Gold: Enjoy up to $120 in Uber Cash annually with your Gold Card. Just add your Card to your Uber account and you'll get $10 in Uber Cash each month to use on orders and rides in the U.S. when you select an Amex Card for your transaction.
- New! As an American Express® Gold Card Member, you can enjoy complimentary Hertz Five Star® Status. Enjoy benefits like skipping the counter at select locations, adding an additional driver at no additional cost*, and vehicle upgrades**. Benefit enrollment and Hertz Gold+ registration are required. *Additional drivers must meet standard rental qualifications and must be a spouse or domestic partner to qualify as complimentary. Other additional drivers subject to fees. **Benefits are subject to availability and vary by location. Additional Hertz program Terms and Conditions including age restrictions apply.
- Take advantage of a $100 credit towards eligible charges* at over 1,300 upscale hotels worldwide when you book The Hotel Collection through AmexTravel.com or the Amex Travel App **. *Eligible charges vary by property. **The Hotel Collection requires a two-night minimum stay.
- Book your travel through the Amex Travel App with added peace of mind – backed by American Express® service and support. Only for American Express® Card Members.
- Whenever you need us, we're here. Our Member Services team will ensure you are taken care of. From lost Card replacement to statement questions, we are available to help 24/7.
- No Foreign Transaction Fees.
- Annual Fee is $325.
- Terms Apply.