(Bloomberg) – Southwest Airlines Co. launched a boost in airline shares, after saying improved demand for free travel for August and September would help reduce its daily cash losses this quarter to about $ 20 million amid the coronavirus pandemic.
The carrier expected to burn an average of $ 23 million a day earlier in the third quarter. “Recent modest improvements in revenue trends” were the primary reason for the better forecast, Southwest said in a regulation submitted Wednesday. Airlines ranked four of the top seven winners in the S&P 500 Industrials Index.
Keeping cash losses under control has become critical for airlines as demand collapsed as the pandemic diminished in March and April and requests for refunds overcame new sales at carriers worldwide. Caregivers parked planes, cut flights, reduced limited queues and offered leave and early retirement to workers to help reduce spending.
The revised view of Southwest could help the airline reach its goal of ending even by the end of the year.
“The market feels better that everyone should have a lower cash burn than they indicated,” said Savanthi Syth, an analyst at Raymond James Financial Inc. “Clearly what we all want to see is zero cash burn, or maybe cash build.”
Southwest rose 2.2% to $ 34.90 at 11:25 a.m. in New York. United Airlines Holdings Inc. climbed 4.4%, while American Airlines Group Inc. 3.3% increase and Delta Air Lines Inc., 2.2%. Southwest shares fell 37 percent this year through Tuesday, the best performance on an S&P 500 index of the five largest U.S. carriers.
Incremental improvement
Alaska Air Group Inc. last week predicted that it would burn less than $ 125 million in August after going through $ 175 million in July “mainly through ticket sales.”
“It’s a matter of steps,” Syth said. The demand remains below an increase that occurred in June, when some states lifted quarantine restrictions, but is improving from July when states began imposing new restrictions after virus cases escalated.
Southwest-based Southwest also updated its outlook on capacity, projecting a third-quarter decline from 30% to 35% from a year earlier. It said earlier that capacity could drop as much as 30%. The airline warned of such a revision last month, as demand improvements stopped in July amid a resurgence of coronavirus cases and broader travel restrictions.
“People’s year-over-year revenue remains significant, and passenger and booking trends remain inconsistent, leading to the company’s recent decline in capacity in August, September and October flight plans, the carrier said.
The airline revised its projection for capacity sharply lower in September: 40% down from a year earlier, instead of the 25% drop previously expected. Capacity will decline 27% this month and by half by October, Southwest said.
August operating revenues will be as much as 75% below a year earlier, the carrier said, consistent with an earlier outlook for a 70% -80% drop, based on improved demand for Friday travel. It is expected that in September 65% -75% will fall.
Southwest decided not to take out a second federal loan, acknowledging its success in raising cash. The carrier, which had signed a non-binding letter of intent for $ 2.8 billion in financing, had $ 15.2 billion in cash and short-term investments and $ 12 billion in unlimited assets, as of Tuesday.
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