Southwest keeps capacity significantly down, hundreds of aircraft in storage

Southwest Airlines is maintaining service to all domestic cities in its network, including five destinations in Hawaii, but has significantly cut capacity as it plans for passenger traffic demand to be reduced for the long term because of the COVID-19 pandemic.

Nearly half of the Dallas-based LCC's fleet of Boeing 737 aircraft is either in short- or long-term storage.

The airline’s capacity is down 70% for the last two weeks of April compared with pre-COVID-19 schedules and will stay down 60-70% for the full month of May. June capacity is currently scheduled to be down around 50%.

Southwest ended the first quarter with 742 aircraft in its fleet, all 737NGs or 737 MAXs, but has moved 106 737NG aircraft into a long-term storage program. That adds to the 34 737 MAX aircraft that were already in long-term storage because of the type's worldwide grounding, meaning the carrier now has a total of 140 aircraft in long-term storage.

The 737NG aircraft placed in long-term storage “were selected based on their age and the proximity to an upcoming significant heavy maintenance requirement,” Southwest COO Mike Van de Ven said during an earnings call with analysts and reporters on April 28. “So, for those aircraft in long-term storage, it will take a minimum of three or four days of time and probably more to bring each of those aircraft current with respect to their maintenance programs before they can be reintroduced into the active fleet.”

Additionally, Southwest has another 250 737NGs in short-term parking programs that rotate in and out of active to flying. “The benefits of the short-term parking program is that the aircraft do remain part of the active fleet and it’s more cost effective in terms of storage costs than the long-term storage program,” Van de Ven said.

“At this point with a lot of the country still sheltering in place and many states continuing to have some level of travel restrictions in place, we’re continuing to see record low passenger demand and revenue trends here in April and May with operating revenue down roughly 90-95% year-over-year and single-digit load factors,” Southwest president Tom Nealon said.

“At this point, it is very, very tough to predict exactly how and when we’ll see trends turnaround. So, we’re staying focused on those things that we can control and that we can manage—we have control of our flight schedule.”

Southwest reported a rare quarterly net loss in the first quarter of $94 million on operating revenue of $4.2 billion, down 17.8% YOY.

“Excluding working capital changes and proceeds from the payroll support program of the CARES Act, our cash burn for April is roughly $900 million and that includes capex and debt service,” CEO Gary Kelly said. “Our goal will be to drive that lower in May and June through more aggressive schedule cuts and hopefully increasing revenues.”

Kelly said Southwest will have social distancing procedures in place on aircraft. Though it does not assign seats, it will not book full flights and will assume all middle seats will be kept empty.

Thanks to payroll assistance from the US Congress’ CARES Act, Southwest will not cut the size of the airline in terms of fleet or employees before Sept. 30, Kelly told CNBC in an April 28 interview. But he added: “We’ll just have to see where we are after Sept. 30. If the traffic doesn’t materialize, then there’s no choice but to downsize the airline. It’s just premature to make those judgments.”

Kelly said he does not foresee air traffic demand coming back anytime soon. “I think a lot of things are going to have to happen for the country to come back to life, much less air travel,” he told CNBC. “If people are going to travel, they’re going to need to have something to do when they get there. So, Disney World needs to open up, restaurants need to open up, that kind of thing.”

Photo credit: Nigel Howarth/Aviation Week