01—Abstract
Summary
Summary of the 10-K filed February 8, 2021. Cited figures are marked; the original filing is the authoritative source.
Southwest Airlines Co. reported a net loss of $3.07 billiona for 2020 compared with net income of $2.30 billion in 2019, as the COVID-19 pandemic sharply reduced demand.
Operating revenues fell to $9.05 billionb from $22.43 billion, and operating expenses fell to $12.86 billion from $19.47 billion, leaving an operating loss of $3.82 billion. Results include a $2.3 billion allocation of Payroll Support Program proceeds and a $1.4 billion charge for Voluntary Separation Program 2020 and Extended ETO elections, both netted within a single line item. Total operating expenses excluding special items were $14.08 billion, and the company described 2020 as its first annual net loss in 48 years.
To bolster liquidity, the company raised $18.9 billionc in capital in 2020, net of fees, including $13.6 billion of borrowings and $2.3 billion from a public common stock offering, and it received $3.4 billion under the CARES Act Payroll Support Program. Cash and cash equivalents rose to $11.06 billion from $2.55 billion at year-end 2019, and cash plus short-term investments totaled $13.3 billion at December 31, 2020. Net cash used in operating activities was $1.1 billion in 2020, compared with $4.0 billion provided in 2019.
Credit ratings were downgraded in March and April 2020 and remain investment grade. Dividends and share repurchases are suspended through March 31, 2022 under the Payroll Support Program agreements.
Looking ahead, the company expects average core cash burn of about $17 milliond per day in first quarter 2021 and states that cash burn breakeven requires operating revenues to recover to 60 to 70 percent of 2019 levels. The Boeing 737 MAX is scheduled to return to revenue service on March 11, 2021, with 35 MAX 8 deliveries expected through 2021, and 2021 capital expenditures are estimated at no more than $500 million.
02—Key points
Key Highlights
- Net loss of $3.07 billion ($5.44 per diluted share) in 2020, versus net income of $2.30 billion in 2019; operating loss of $3.82 billion.
- Operating revenues fell to $9.05 billion from $22.43 billion; passenger revenues fell 63.1 percent, and capacity fell 34.2 percent.
- Year-end 2020 cash and cash equivalents of $11.06 billion and cash plus short-term investments of $13.3 billion, supported by $18.9 billion of capital raised during 2020.
- Net cash used in operating activities of $1.1 billion in 2020, versus $4.0 billion provided in 2019.
- Total debt rose to $10.4 billion principal at year-end 2020 from $2.7 billion, including $2.0 billion of 5.125% notes due 2027 and a $2.3 billion public common stock offering.
- Air traffic liability totaled $7.13 billion, with $2.1 billion of Customer travel funds set to expire September 7, 2022.
- Boeing 737 MAX return to revenue service scheduled for March 11, 2021; the company expects 2021 capital expenditures of no more than $500 million.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 8, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $9.05B$22.43B | −59.7% |
| Operating Income | -$3.82B$2.96B | −229.0% |
| Net Income | -$3.07B$2.30B | −233.7% |
| EPS (Basic) | $-5.44$4.28 | −227.1% |
| EPS (Diluted) | $-5.44$4.27 | −227.4% |
| Shares Outstanding (Basic) | 565.00M538.00M | +5.0% |
| Shares Outstanding (Diluted) | 565.00M539.00M | +4.8% |
05—Questions
Frequently Asked Questions
How much did Southwest lose in 2020 and what drove it?
Southwest reported a net loss of $3.07 billion, or $5.44 per diluted share, for 2020. The filing attributes the loss to the COVID-19 pandemic, which depressed passenger demand and bookings. Operating revenues declined 59.7 percent while operating expenses declined 33.9 percent, because a large portion of the cost structure is fixed in the short term.
How is Southwest funding itself through the downturn?
The company borrowed $13.6 billion during 2020, raised $2.3 billion through a public offering of 80.5 million common shares, and received $3.4 billion under the CARES Act Payroll Support Program, of which $2.4 billion is a grant. It also sold and leased back 20 aircraft for $815 million and received $428 million in supplier proceeds from Boeing. Year-end cash and short-term investments totaled $13.3 billion.
What restrictions come with the government payroll support?
Under the Payroll Support Program and its extension, the company is prohibited from repurchasing stock and paying dividends through March 31, 2022. It may not implement involuntary terminations or furloughs, or reduce employee salaries, wages or benefits, through March 31, 2021. It must also maintain certain scheduled service as directed by the DOT until March 1, 2022.
What is the outlook for the Boeing 737 MAX and cash burn?
The company has scheduled the MAX's return to revenue service for March 11, 2021, and expects 35 MAX 8 deliveries, including 16 leased aircraft, through the end of 2021. It expects average core cash burn of about $17 million per day in first quarter 2021, and says cash burn breakeven would require operating revenues to recover to 60 to 70 percent of 2019 levels, which the filing describes as roughly double current levels.
06—Continue