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Southwest Airlines to Cut Capacity as Virus Spread Erodes Demand

Mary Schlangenstein

(Bloomberg) -- Southwest Airlines Co. will shave at least 20% of its flight capacity, freeze hiring and offer leaves to workers as the spread of coronavirus erodes demand for travel.

The carrier secured a $1 billion term loan and drew down the full amount of an existing $1 billion unsecured revolving credit facility, according to a regulatory filing Monday. It also suspended existing financial guidance for the year.

Southwest’s pulldown follows major reductions at larger carriers and underscores the extent to which the outbreak and travel restrictions have devastated demand for air travel. U.S. carriers on Monday asked the federal government to approve a package of $58 billion in financial help, including loans, grants and tax relief.

“It is uncertain how long the recovery from this will be, and it is certain this will be far worse than 9/11 was,” Chief Executive Officer Gary Kelly told workers in a video.

American Airlines Group Inc. will slash international flying by 75% and domestic by as much as 30%, while United Airlines Holdings Inc. will slice capacity by 50% in April and May, and Delta Air Lines Inc. plans a 40% reduction, its biggest ever. Carriers are working to reduce costs by parking planes, freezing hiring and offering voluntary leaves of absence.

Southwest has recently experienced several days of net negative bookings, primarily in March and April 2020, where trip cancellations outpaced new passenger bookings, the filing said.

“We are encouraging all employees to take voluntary leaves or time off without pay where it make sense,” Kelly said. “And we have now frozen all hiring.”

Southwest’s traffic reductions will be in effect April 14 through June 5, and the carrier warned that it expects revenue trends in the second quarter to decline further. It’s evaluating additional flight schedule reductions. The cutbacks are in addition to the reduced schedule Southwest has been flying because of the grounding of the Boeing Co. 737 Max.

In another recorded message, Kelly told workers they can’t return their 2019 profit-sharing checks, as some had offered. The carrier paid out $667 million in profit-sharing last month.

“This is not the time to panic,” he advised employees. “It never helps anybody. But it is most definitely a time to pull together.”

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Susan Warren

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