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!
WELCOME OFFER: Up to 100,000 bonus miles
TPG'S BONUS VALUATION*: $1,040
CARD HIGHLIGHTS: 3X miles on United® purchases
*Bonus value is an estimated value calculated by TPG and not the card issuer. View our latest valuations here.
- Earn 80K bonus miles after you spend $5,000 on purchases in the first 3 months your account is open. Plus, an additional 20K bonus miles after you spend $10,000 in the first 6 months
- $250 Annual Fee
- Earn 3X miles on United® purchases, 2X miles at restaurants, on select streaming services & all other travel, 1X on all other purchases
- Earn 3X miles on United Airlines purchases
- Earn 2X miles at restaurants and on select streaming services
- Earn 2X miles on all other travel
- Earn 1X mile on all other purchases
- Each year, receive a $125 credit on United® purchases and two 5k-mile anniversary award flight credits. Terms apply.