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Southwest Airlines to cut capacity 20% as bookings plummet

March 16, 2020
3 min read
Southwest Posts Q1 $200 Million Revenue Loss Due To Boeing MAX Groundings
Southwest Airlines to cut capacity 20% as bookings plummet
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Southwest Airlines will cut capacity by 20% beginning in April, becoming the latest U.S. carrier to slash schedules as the global air travel system appears to be gradually grinding to a halt amid the spreading novel coronavirus outbreak.

The Dallas-based carrier will cut its published capacity by 20% from April 14 through June 5, Southwest said in a securities filing Monday. In addition, the company is freezing hiring, offering employees voluntary leave and evaluating all capital spending.

“[Southwest] has experienced more dramatic declines in passenger bookings in March and second quarter 2020, as well as an unprecedented increase in close-in trip cancellations," the airline said.

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Prior to these cuts, Southwest stood apart from the majority of U.S. carriers in not planning any additional capacity cuts due to COVID-19. Alaska Airlines, American Airlines, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, Spirit Airlines and United Airlines have all disclosed reductions.

Southwest CEO Gary Kelly, speaking at a U.S. Chamber of Commerce event on March 5, said that while bookings began falling at the end of February the carrier was not yet planning capacity cuts. The airline was already due to shrink in the first quarter owing to the Boeing 737 MAX grounding.

Kelly did say that Southwest was watching bookings closely and could cut capacity if demand worsened.

Related: US airlines seek at least $50 billion in aid to combat coronavirus crisis

Demand, by all accounts, has worsened dramatically. Only about 67% of the airline's seats were full during the first 15 days of March, Southwest said Monday. In addition, the trend is toward average loads — or the percent of seats that are full — of just 50% on its flights.

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Southwest did not say where in its network it will cut a fifth of capacity. However, the airline's president Tom Nealon told the Honolulu Star-Advertiser on March 12 that it would not cut its relatively new Hawaii flights.

The latest capacity cuts come the same day that industry body Airlines for America (A4A) requested at least $50 billion in federal aid for the U.S. industry. The assistance would be split between grants and loans that would provide liquidity to carriers at a time when revenue has all but dried up.

Related: US airlines could retire older aircraft, focus on newer models due to coronavirus downturn

Southwest has $6.2 billion in unrestricted cash, plus 525 aircraft valued at $10 billion that it can borrow against, it said Monday. The airline closed a new $1 billion credit facility on March 12.

The coronavirus-related slowdown has repeatedly been called "unprecedented" by airlines, with at least one CEO warning earlier this month that the downturn could be worse than what was seen after 9/11.

After 9/11, Southwest was notable for not cutting capacity despite the drop in demand. The airline maintained its schedule and network, and instead postponed new aircraft deliveries and delayed planned growth.

Related: US airline execs warn coronavirus impact ‘could be worse than 9/11’ downturn

Featured by Justin Sullivan/Getty Images.

Featured image by Getty Images