DALLAS - Southwest Airlines is adding more flights in June and says it expects passengers to start coming back after more than two months of the COVID-19 pandemic decimating the aviation industry.
Even though planes will still on average be less than half full, Dallas-based Southwest said in a regulatory filing Tuesday that for the first time in months, more customers are buying flights than canceling.
Southwest, with its network focused mostly on domestic travel, could be making a move to take market share from major competitors in American Airlines, Delta and United. Southwest is making major increases in seat capacity for June and July, even while competitors are cutting.
It also has the lowest debt load of any of the major airlines and is burning through less cash than competitors.
Southwest is scheduling about 2.1 million seats a week in June, up from 1.5 million in the middle of May, according to Bloomberg Intelligence. Meanwhile, competitors such as United and Delta are still cutting. Fort Worth-based American Airlines is planning for modest increase in seats in June, according to Dallas-based Airline Data Inc.
"Our view on Southwest is that they are building a war chest to get through this pandemic," said Helane Becker, senior airline analyst with investment and research firm Cowen. "The schedule helps them to attract passengers and then of course, they'll adjust about a week out whether or not they'll actually fly the schedule."
Southwest's financial and network strategy may put it in a better than anticipated position to emerge from the pandemic. Southwest's network is mostly in the U.S. and its 15 foreign destinations are all within North America.
Already planes are looking fuller at Southwest.
Planes were just 8% full in April and that's risen to 25% to 30% in May, the company said in the filing. Some of that came from Southwest cutting flights in April, but the company is looking to make more flights available as June and the summer travel season starts.
Nationwide, airline traffic has more than doubled from the lows it hit in the middle of April when fewer than 88,000 passengers boarded planes on one day, according to the Transportation Security Administration. On Monday, more than 244,000 passengers passed through TSA checkpoints in the U.S., a marked improvement, though still less than 10% of travel levels a year ago.
But the number of new bookings is positive for Southwest, which is leaning on its domestic flying schedule while international travel is still stifled by the COVID-19 pandemic and accompanying travel restrictions in many countries.
Airlines are also reducing the practice of scheduling flights only to cancel and consolidate on the day of takeoff, said Jeff Pelletier, managing director at Airline Data Inc.
"Southwest day-of cancellations, while still happening, are a lot less prevalent then they were when this all started happening," Pelletier said. "It is very much a trickle-down effect with them when they cancel a flight."
Delta Air Lines has also seen some days lately where new sales outpaced cancellations, but the company is watching to make sure that customers aren't booking with plans to cancel later, said Delta chief financial officer Paul Jacobson during an investor conference by Wolfe Research on Tuesday.
For airlines, the strategy is all about preserving cash. Southwest Airlines said it has about $13 billion in cash and short-term investments at its disposal.
"While we can't control the pandemic, the economy or customer demand, we can take meaningful measures to control our spending and conserve cash as much as possible," Southwest CEO Gary Kelly said in a video last week.
Southwest said Tuesday it expects it to be burning through about $20 million of cash a day by the end of June, a number that it will need to continue to decrease to get back to profitability. American Airlines expects to be burning through about $50 million in cash a day by the end of June.
Even though Southwest is adding flights to schedules for June, traffic is still significantly down from a year ago. Southwest said capacity for June will be down 45% to 55% compared to 2019 and, even with improvements, seats will only be 35% to 45% occupied. Before the crisis, airlines were filling about 85% of all scheduled seats.
However, even if Southwest has a better outlook than other airlines, it will still take improvement to avoid painful cuts.
"There needs to be a meaningful pick up in bookings by September or they will wind up furloughing people for the first time in their history," Becker said. "Of course, that is not the preferred method, but it will be necessary if there isn't an uptick in travel. "