Southwest Airlines weakens despite 3Q21 beat, as October flight cancellations lead to USD 75m loss — Market React

While Southwest Airlines reported a less-than-expected revenue loss for 3Q21, its debt and equity softened as the airline revealed that flight cancellations cost the company USD 75m this month. The remaining effects of the Delta variant have also led to a USD 40m loss so far in October.

For the quarter ended 30 September, the airline reported that third-quarter revenue reached USD 4.68bn, up 161% from a year ago but down 17% compared with 3Q19 ahead of the pandemic. The number also topped market expectations of USD 4.58bn.

Earlier in October, Southwest canceled thousands of flights over a four-day period, igniting speculation that the mess was caused by a worker shortage related to the company’s vaccine mandate. The company recently scrapped its plan to put unvaccinated employees on unpaid leave. 

“We have reined in our capacity plans to adjust to the current staffing environment, and our on-time performance has improved, accordingly,” said CEO Gary Kelly in the company’s earnings release. “We are aggressively hiring to a goal of approximately 5,000 new employees by the end of this year, and we are currently more than halfway toward that goal.”

The airline cut its December capacity to 92% of what it flew in the same month of 2019, down from a plan to fly 95% of its schedule from 2019.

At quarter-end, the airline listed USD 17bn in liquidity, including USD 16bn in cash and USD 1bn in revolver availability. 

As with fellow airlines Delta Air Lines and United Airlines, the company expects to pay more in fuel costs in 4Q21, roughly USD 2.25 to USD 2.35 per gallon. This compared to USD 2.04 per gallon paid in 3Q21. 

Southwest’s USD 2bn 5.125% senior unsecured notes due 2027 slid to 115.449 to yield 2.12% today, compared to trades at 115.817 to yield 2.058% yesterday (20 October), according to MarketAxess. 

The company’s equity traded as low as USD 48.60 per share today and a market cap of USD 28.831bn, down 1.76% from yesterday’s close.

2021 Debtwire

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