Southwest Airlines (LUV) expects leisure travel to pick up in the coming months

Shares of Southwest Airlines (NYSE: LUV) stayed in green territory on Tuesday after the company provided an update on its guidance for the coming months. The stock has gained 10% since the beginning of this year.

Leisure travel

Southwest continues to face negative impacts to its passenger demand and bookings from the COVID-19 pandemic. Nevertheless, the company saw leisure passenger demand and operating revenues for January 2021 come in line with its expectations. Demand and bookings for leisure travel saw a pickup in February and demand for leisure travel is expected to improve further in March. Business travel demand and bookings remain depressed.

Revenues and capacity

Operating revenues were down 66% year-over-year in January 2021 and is estimated to drop 65-70% in February. In March, revenues are projected to fall 20-30% YoY. March 2021 revenues are expected to decline 55-65% compared to 2019.

For the first quarter of 2021, capacity is expected to decrease by around 35% compared to the same period in 2020 and around 38% versus 2019. In April 2021, capacity is projected to increase approx. 81% compared to the year-ago period but compared to April 2019, capacity is expected to fall approx. 25%.

Passenger demand and booking trends remain mainly leisure-oriented and inconsistent on a regional basis due to which the company remains cautious and is working on multiple fleet and capacity plans to make adjustments as required.

Boeing Max

Southwest is working to meet the Federal Aviation Administration’s requirements for airlines to return the Boeing 737 MAX to service. The company has scheduled the MAX return to revenue service on March 11, 2021 after it meets all the requirements.

Other metrics

Southwest expects its economic fuel costs for the first quarter of 2021 to be in the range of $1.60-1.70 per gallon. Operating expenses, excluding fuel, are expected to decrease 15-20% year-over-year.

The average core cash burn was approx. $15 million per day in January 2021. For the first quarter of 2021, average core cash burn is expected to be in the range of $10-15 million per day. As of February 12, 2021, Southwest had cash and short-term investments of approx. $13.7 billion.

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