Southwest Airlines says that it has enough liquidity to
handle even the worst scenarios well into 2021. Meanwhile, the company’s CEO
expects air travel to eventually get back to normal, though full business
travel recovery could be five or more years off. 

“If we can have the Roaring ’20s follow the Spanish flu of
1918, which was far worse than we are experiencing today, then we can get
through this,” CEO Gary Kelly said during the company’s earnings call Tuesday. 

Southwest plans a year-over-year reduction in flying of 65%
this quarter and expects load factors to remain in single digits through May. 

Nevertheless, company executives emphasized their view that
the carrier had the strongest balance sheet among U.S. airlines ahead of the
Covid-19 crisis, which will enable it to emerge in better shape.  

“We came into this crisis as the best prepared U.S. airline
and we plan to emerge as the best prepared U.S. airline both financially and
operationally,” CFO Tammy Romo said. 

This year, Southwest has raised $5.2 billion in liquidity in
the private market and has received $1.6 billion through the federal Cares Act
rescue package. The Treasury Department is slated to give Southwest another
$1.6 billion in grants and low-interest loans in the coming three months.

As of April 24, Southwest had cash and short-term
investments of $9.3 billion and another $8 billion in unencumbered aircraft and
other assets that could be used as collateral for future loans.

The carrier is further bolstering liquidity through a public
offering of 55 million shares of stock and a debt security of $1 billion in
convertible senior notes. 

Kelly said that Southwest would likely have to downsize
after Sept. 30, when the Cares Act prohibition against layoffs and furloughs expires.
But he hopes that the downsizing will only need to be modest. 

“If we need to radically restructure Southwest Airlines, we
will do that,” he said. “I think we have a great product and a very successful
business model, so I don’t feel that we will have to do that.”

Southwest reported a loss of $94 million during the first
quarter as demand in March dropped in a fashion that Kelly described as “unprecedented
and frankly breathtaking.” By comparison, Southwest reported net income of $387
million during the first quarter last year. Revenue dropped 17.8% year over year
in the quarter. 

At present, demand is down 90% to 95% Kelly said, even
though bookings have drifted up slightly since hitting rock bottom in the first
week of April. 

Southwest expects to burn through $900 million in cash this
month and estimates average daily cash burn during the second quarter will be
$30 million to $35 million. Still, that’s down from the $65 million per day at
the start of the crisis. Schedule reductions, slashes to capital expenditures,
voluntary time-off programs, fuel price decreases and other cuts have helped
reduce expenses.

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