Item 2. Management’s Discussion and Analysis
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Relevant comparative operating statistics for the three months ended March 31, 2021 and 2020 are included below. The Company provides these operating statistics because they are commonly used in the airline industry and, as such, allow readers to compare the Company’s performance against its results for the prior year period, as well as against the performance of the Company’s peers. In the first quarter of both years, most of these operating statistics were significantly impacted by the COVID-19 pandemic and decisions the Company made as a result of the pandemic. See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information.
Three months ended March 31,
2021 2020 Change
Revenue passengers carried (000s) 14,225 24,748 (42.5) %
Enplaned passengers (000s) 17,927 29,779 (39.8) %
Revenue passenger miles (RPMs) (in millions) (a)
14,875 23,935 (37.9) %
Available seat miles (ASMs) (in millions) (b)
23,146 35,350 (34.5) %
Load factor (c)
64.3 % 67.7 % (3.4) pts.
Average length of passenger haul (miles) 1,046 967 8.2 %
Average aircraft stage length (miles) 772 737 4.7 %
Trips flown 192,401 312,393 (38.4) %
Seats flown (000s) (d)
29,791 47,130 (36.8) %
Seats per trip (e)
154.8 150.9 2.6 %
Average passenger fare $ 120.36 $ 155.37 (22.5) %
Passenger revenue yield per RPM (cents) (f)
11.51 16.07 (28.4) %
Operating revenues per ASM (cents) (g)
8.86 11.98 (26.0) %
Passenger revenue per ASM (cents) (h)
7.40 10.88 (32.0) %
Operating expenses per ASM (cents) (i)
8.00 12.29 (34.9) %
Operating expenses per ASM, excluding fuel (cents) 5.98 9.83 (39.2) %
Operating expenses per ASM, excluding fuel and profitsharing (cents) 5.88 9.83 (40.2) %
Fuel costs per gallon, including fuel tax $ 1.63 $ 1.90 (14.2) %
Fuel costs per gallon, including fuel tax, economic $ 1.70 $ 1.90 (10.5) %
Fuel consumed, in gallons (millions) 286 457 (37.4) %
Active fulltime equivalent Employees 56,051 (j) 60,922 (8.0) %
Aircraft at end of period (k)(l)
730 742 (1.6) %
(a) A revenue passenger mile is one paying passenger flown one mile. Also referred to as "traffic," which is a measure of demand for a given period.
(b) An available seat mile is one seat (empty or full) flown one mile. Also referred to as "capacity," which is a measure of the space available to carry passengers in a given period.
(c) Revenue passenger miles divided by available seat miles.
(d) Seats flown is calculated using total number of seats available by aircraft type multiplied by the total trips flown by the same aircraft type during a particular period.
(e) Seats per trip is calculated by dividing seats flown by trips flown.
(f) Calculated as passenger revenue divided by revenue passenger miles. Also referred to as "yield," this is the average cost paid by a paying passenger to fly one mile, which is a measure of revenue production and fares.
(g) Calculated as operating revenues divided by available seat miles. Also referred to as "operating unit revenues," or "RASM," this is a measure of operating revenue production based on the total available seat miles flown during a particular period.
(h) Calculated as passenger revenue divided by available seat miles. Also referred to as "passenger unit revenues," this is a measure of passenger revenue production based on the total available seat miles flown during a particular period.
(i) Calculated as operating expenses divided by available seat miles. Also referred to as "unit costs," "cost per available seat mile," or "CASM" this is the average cost to fly an aircraft seat (empty or full) one mile, which is a measure of cost efficiencies.
(j) Included 8,164 Employees participating in the Extended Emergency Time Off program as of March 31, 2021. See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information.
(k) Included 7 Boeing 737 MAX aircraft in temporary storage as of March 31, 2021, and 34 Boeing 737 MAX aircraft in long term storage as of March 31, 2020. See Note 11 to the unaudited Condensed Consolidated Financial Statements for further information.
(l) Included 59 and 93 Boeing 737 Next Generation aircraft removed from active fleet and in temporary storage as of March 31, 2021 and 2020, respectively.
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Financial Overview
In late February 2020, the Company began to see a negative impact from the COVID-19 pandemic, which quickly accelerated during first quarter 2020 and continued throughout 2020. The Company continued to experience significant negative impacts to passenger demand and bookings through the entirety of first quarter 2021, although modest improvements in leisure bookings were noted in mid-February 2021 that steadily improved through March 2021. The Company's financial results in both years, on both a GAAP and Non-GAAP basis, were significantly impacted by the pandemic and resulting effect on demand and passenger bookings. In addition, GAAP results in first quarter 2021 included $1.2 billion in Payroll Support Program Extension grants. See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information.
See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.
COVID-19 Pandemic
In response to the far-reaching impacts of the COVID-19 pandemic, the Company took, and continues to assess and modify, measures to support the well-being of both its Employees and passengers, including procedures and policies intended to maintain cleanliness on aircraft and at facilities, and mitigate the spread of the virus. The Company also continues to monitor guidelines and recommendations from the Centers for Disease Control and Prevention applicable to the Company’s daily operations, as well as how the majority of the Company’s office and clerical Employees work on a daily basis.
As detailed in Note 2 to the unaudited Condensed Consolidated Financial Statements, in connection with the major negative impact of COVID-19 on air carriers, in 2020, the Company received significant financial assistance from the U.S. Department of Treasury ("Treasury") pursuant to the Payroll Support Program established pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").
In January 2021, the Company entered into definitive documentation with Treasury for further payroll support under the Consolidated Appropriations Act, 2021 (the "Payroll Support Program Extension"). As of March 31, 2021, amounts received under the Payroll Support Program Extension were approximately $1.7 billion and a portion has been recognized in the financial statements as a grant to directly offset qualifying payroll expenses incurred by the Company, including specified benefits, between January 2021 and March 2021. As consideration for the Payroll Support Program Extension, during first quarter 2021, the Company issued a promissory note (the "PSP2 Note") in favor of Treasury in the aggregate amount of $488 million and issued warrants (each, a "PSP2 Warrant") valued at a total of $23 million to purchase up to an aggregate of 1.1 million shares of the Company's common stock, subject to adjustment pursuant to the terms of the PSP2 Warrants. Of the approximate $1.7 billion of further payroll support proceeds as of March 31, 2021, $1.2 billion consisted of a grant that does not require repayment. The grant of $1.2 billion was allocated on a pro-rata basis as a contra-expense line item in the unaudited Condensed Consolidated Statement of Comprehensive Income (Loss) during first quarter 2021, with the remaining $23 million allocated to the value of PSP2 Warrants issued from the Company to Treasury. See Note 2 to the unaudited Condensed Financial Statements for further information.
On April 23, 2021, the Company received an additional $259 million related to the Payroll Support Program Extension, for which the Company provided Treasury consideration in the form of an increase of the PSP2 Note in an amount of $78 million and a PSP2 Warrant to purchase up to 168 thousand shares of the Company's common stock under the PSP2 Warrant Agreement. After taking into account the additional support under the Payroll Support Program Extension, the Company has received $2.0 billion of payroll support under the Payroll Support Program Extension, for which the Company has provided Treasury with a PSP2 Note in the aggregate amount of $566 million and PSP2 Warrants to purchase up to 1.2 million shares of the Company's common stock.
In accordance with restrictions contained in the Payroll Support Program Extension, and except as permitted or required under the Payroll Support Program Extension, the Company has not (1) conducted involuntary
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terminations or furloughs or (2) reduced the salaries, wages, or benefits, as defined, of any employee, in each case between the date of the Payroll Support Program Extension agreement and March 31, 2021.
On April 23, 2021, the Company entered into definitive documentation with Treasury for further payroll support under the American Rescue Plan Act of 2021 (the "PSP3 Payroll Support Program"). Amounts received or to be received under the PSP3 Payroll Support Program are expected to total approximately $1.9 billion, all or a portion of which will again be utilized to directly offset qualifying payroll expenses incurred by the Company, including specified benefits, through at least September 30, 2021. Of this total, approximately $1.3 billion consists of a grant that will not require repayment. The Company currently expects this grant of $1.3 billion will be classified as a contra-expense line item in the unaudited Condensed Consolidated Statement of Comprehensive Income (Loss) during second quarter and third quarter 2021. As consideration for the PSP3 Payroll Support Program, the Company is expected to issue a promissory note in favor of Treasury in the aggregate amount of approximately $526 million and issue warrants (each, a "PSP3 Warrant") valued at a total of approximately $18 million to purchase up to an aggregate of approximately 899 thousand shares of the Company's common stock, subject to adjustment pursuant to the terms of the PSP3 Warrants. See Note 2 to the unaudited Condensed Financial Statements for further information.
In accordance with restrictions contained in the PSP3 Payroll Support Program, and except as permitted or required under the PSP3 Payroll Support Program, the Company has agreed not to (1) conduct involuntary terminations or furloughs or (2) reduce the salaries, wages, or benefits, as defined, of any employee, in each case between the date of the PSP3 Payroll Support Program agreement and the later of September 30, 2021 or the date on which the Company has expended all of the PSP3 Payroll Support Program funds.
During second quarter 2020, the Company introduced Voluntary Separation Program 2020 and the Extended Emergency Time Off ("Extended ETO") program which helped closer align staffing to reduced flight schedules and enabled the Company to avoid involuntary furloughs and layoffs. Employees had until July 15, 2020, to determine whether to participate in one of these programs, and approximately 15,000 Employees elected to do so. The Company continues to evaluate and evolve its Extended ETO program in 2021. In accordance with applicable accounting guidance, the Company recorded a total charge of $1.4 billion in 2020 related to the special termination benefits for Employees who had accepted the Company's offer to participate in its Voluntary Separation Program 2020 and the special benefits for Employees who participated in its Extended ETO program. The accrual is being reduced as program benefits are paid or as it becomes no longer probable that Employees will remain on leave for their elected terms. This program has allowed the Company to reduce its fixed cost structure in the near-term, while maintaining the ability to adjust to a recovery in travel demand. See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information. As a result of these voluntary programs, the Company's salaries, wages, and benefits costs were lowered by approximately $412 million in first quarter 2021.
See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information on the significant impacts to the Company’s operations, financial performance, and liquidity from the COVID-19 pandemic.
Thus far, the Company continues to experience improvements in leisure passenger demand and bookings for April and May 2021 travel, with expectations of improving passenger traffic and fares compared with March 2021. The Company continues to experience an increase in bookings farther out on the booking curve, with approximately 35 percent and 20 percent of anticipated bookings currently in place for June and July, respectively. These represent fairly typical future booking patterns; however, business travel continues to significantly lag leisure and is expected to have a significant negative impact on close-in demand and average passenger fares.
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The following table presents selected preliminary estimates of operating revenue, load factor, and capacity for April and May 2021:
Estimated
April 2021 Estimated
May 2021
Operating revenue compared with 2019 (a) Down 40% to 45% Down 35% to 40%
Previous estimation (b) (b)
Load factor 75% to 80% 75% to 80%
Previous estimation (b) (b)
ASMs year-over-year Up ~83% Up ~127%
Previous estimation (b) (b)
(a) The Company believes that operating revenues compared with 2019 is a more relevant measure of performance than a year-over-year comparison due to the significant impacts in 2020 due to the pandemic.
(b) Remains unchanged from the previously provided estimation.
The Company estimates its June 2021 capacity to decrease approximately 4 percent as compared with June 2019. The Company estimates its second quarter 2021 capacity to increase approximately 90 percent, year-over-year, and decrease approximately 15 percent as compared with 2019, driven by improving passenger demand and bookings.
Excluding Fuel and oil expense, special items, and profitsharing expense, the Company's second quarter 2021 operating expenses are expected to increase in the range of 10 to 15 percent, year-over-year, which includes an estimated $325 million of salaries, wages, and benefits cost savings from voluntary separation and extended leave programs. See Note 2 to the unaudited Condensed Consolidated Financial Statements for further description of these programs. Second quarter 2021 operating expenses, excluding fuel and oil expense, special items, and profitsharing, are also expected to increase compared with first quarter 2021, with 60 to 70 percent of the sequential increase attributable to variable, flight-driven expenses as capacity is expected to increase to near-2019 levels by June 2021. These variable, flight-driven cost increases are primarily in salaries, wages, and benefits due to staffing increases; maintenance expense to return aircraft to revenue service, along with higher flight-driven maintenance expenses as flight levels increase; landing fees; and personnel, passenger, and revenue-related costs. In addition, the Company is experiencing cost increases primarily due to airport cost inflation; higher aircraft ownership costs due to MAX deliveries; and certain favorable tax and insurance settlements realized in first quarter 2021 operating expenses that are non-recurring in second quarter 2021. Despite increasing capacity and operating expenses, both sequentially and year-over-year, second quarter 2021 operating expenses are estimated to remain below second quarter 2019 levels. The projections do not reflect the potential impact of Fuel and oil expense, special items, and profitsharing expense because the Company cannot reliably predict or estimate these items or expenses or their impact to its financial statements in future periods, especially considering the significant volatility of the Fuel and oil expense line item. Accordingly, the Company believes a reconciliation of non-GAAP financial measures to the equivalent GAAP financial measures for projected results is not meaningful or available without unreasonable effort.
Company Overview
On November 18, 2020, the Federal Aviation Administration (the "FAA") issued official requirements to enable airlines to return the Boeing 737 MAX to service. The Company has worked to meet the FAA's requirements by modifying certain operating procedures, implementing enhanced Pilot training requirements, installing FAA-approved flight control software updates, and completing other required maintenance tasks specific to the MAX aircraft. The Company returned the MAX to service on March 11, 2021, after the Company met all FAA requirements and Pilots received updated, MAX-related training. In April 2021, the Company removed 32 of its MAX aircraft from service due to a Boeing production issue related to the electrical power system on a subset of MAX aircraft. Upon learning of the issue, the Company immediately removed these aircraft from service, out of an abundance of caution, and is currently awaiting more guidance from Boeing and the FAA regarding the appropriate corrective actions. The Company has covered impacted flights with other aircraft in the fleet and has not experienced significant operational disruptions. Once the Company receives formal guidance from Boeing and the FAA, the Company anticipates the actions necessary to return the affected 32 aircraft to service will take two to
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three days per aircraft and several weeks in total. The Company is in the process of returning its stored 737-700 aircraft to revenue service to support flight schedules in summer 2021 and beyond.
On March 24, 2021, the Company entered into Supplemental Agreement No. 12 (the "Supplement") to its aircraft purchase agreement with Boeing relating to the Company's purchase of Boeing 737 MAX 7 and 737 MAX 8 aircraft. Pursuant to the Supplement (i) the Company added 100 firm orders for the MAX 7, with the first 30 to be delivered in 2022; (ii) the Company added 155 MAX aircraft options; (iii) the order book was extended to include deliveries through 2031; and (iv) the Company converted 70 MAX 8 firm orders to MAX 7 firm orders. The Supplement also includes certain confidential credits, discounts, and other concessions provided to the Company by Boeing.
Based on the Company's existing delivery schedule with Boeing, as reflected in Note 10 to the unaudited Condensed Consolidated Financial Statements, the Company's contractual aircraft capital spending commitments associated with firm orders for all years 2021 through 2026, which consists of 169 MAX firm orders from Boeing (135 MAX 7 and 34 MAX 8 aircraft), are approximately $5.1 billion. The Company’s capital commitments associated with its existing firm orders are as follows: none for 2021 (due to previously agreed upon delivery credits provided by The Boeing Company to the Company due to the settlement of 2020 estimated damages relating to the FAA grounding of the 737 MAX aircraft and progress payments made to date on undelivered aircraft) and approximately $700 million in 2022 (net of progress payments made on undelivered MAX aircraft and previously agreed upon delivery credits provided by Boeing to the Company). The Company estimates its 2021 capital expenditures to be approximately $500 million, primarily driven by technology, facilities, and operational investments. See Note 10 to the unaudited Condensed Consolidated Financial Statements for further information.
The Company ended first quarter 2021 with 730 aircraft in its fleet. During first quarter 2021, 20 Boeing 737 MAX aircraft were delivered and the Company returned eight leased 737-700 aircraft. The Company expects eight additional Boeing 737 MAX aircraft to be delivered by December 31, 2021 and expects to retire up to nine more 737-700 aircraft in 2021. In response to capacity reductions due to the effects of the COVID-19 pandemic, as of March 31, 2021, the Company had approximately 66 aircraft in temporary storage. These stored aircraft provide greater flexibility to adapt to the seasonal demand patterns that are currently expected to develop during second quarter 2021. The Company continues the acceleration of fleet modernization efforts to replace its 737-700 aircraft with the MAX, and the development of tangible steps that are aimed at improving upon the Company's environmental stewardship and supporting the environmental sustainability goal to be carbon neutral by 2050. See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information on the effects of the COVID-19 pandemic.
The Company has published its flight schedule through November 5, 2021. The Company is pursuing additional revenue opportunities that utilize idle aircraft and Employees to provide Southwest's legendary Customer Service to new, popular destinations. The Company is leveraging additional airports in or near cities where its Customer base is large, along with adding easier access to popular leisure-oriented destinations from across its domestic-focused network. These additional service points on the Company's map are opportunities it can provide Customers now, all while better positioning the Company for a travel demand rebound. During 2021, the Company has begun service to new destinations including:
• Chicago O'Hare International Airport and Sarasota Bradenton International Airport - February 14, 2021
• Colorado Springs Municipal Airport and Savannah/Hilton Head International Airport - March 11, 2021
• Houston's George Bush Intercontinental Airport and Santa Barbara Airport - April 12, 2021
• Fresno Yosemite International Airport - April 25, 2021
The Company has also announced other new destinations and expected service commencement dates including:
• Destin-Fort Walton Beach Airport - May 6, 2021
• Myrtle Beach International Airport - May 23, 2021
• Bozeman Yellowstone International Airport - May 27, 2021
• Jackson-Medgar Wiley Evers International Airport in Mississippi - June 6, 2021
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• Eugene Airport in Oregon - August 29, 2021
• Bellingham International Airport in Washington - Second half 2021
Material Changes in Results of Operations
Comparison of three months ended March 31, 2021 and March 31, 2020
Operating Revenues
Total operating revenues for first quarter 2021 decreased by $2.2 billion, or 51.5 percent, year-over-year, to $2.1 billion, driven primarily by the continued weak Passenger demand and bookings due to the COVID-19 pandemic throughout first quarter 2021. First quarter 2021 operating revenues per available seat mile (RASM) were 8.86 cents, and decreased 26.0 percent, compared with first quarter 2020, primarily driven by the drop in passenger demand caused by the COVID-19 pandemic, which contributed to the Load factor decrease of 3.4 points, and the passenger revenue yield decrease of 28.4 percent, year-over-year.
Passenger revenues for first quarter 2021 decreased by $2.1 billion, or 55.5 percent, year-over-year. On a unit basis, Passenger revenues decreased 32.0 percent, year-over-year. The decrease in Passenger revenues on both a dollar and unit basis was primarily due to the impact of the COVID-19 pandemic, which resulted in significant reductions in capacity and a depressed passenger demand and bookings throughout the first quarter 2021, versus primarily only impacting March in the first quarter of 2020.
Freight revenues for first quarter 2021 increased by $4 million, or 10.3 percent, compared with first quarter 2020, primarily due to increased demand as businesses reduce pandemic driven restrictions.
Other revenues for first quarter 2021 decreased by $53 million, or 15.1 percent, compared with first quarter 2020. The decrease was primarily due to a decrease in income from business partners, including Chase Bank USA, N.A. ("Chase") and the impact on spend on the Company's co-brand card, driven by the decline in consumer spending resulting from the COVID-19 pandemic.
Operating Expenses
Operating expenses for first quarter 2021 decreased by $2.5 billion, or 57.3 percent, compared with first quarter 2020, while capacity decreased 34.5 percent over the same prior year period. The operating expense decrease was primarily due to the $1.2 billion in grants allocated to fund eligible salaries, wages, and benefits through the Payroll Support Program Extension. Historically, except for changes in the price of fuel, changes in Operating expenses for airlines have been largely driven by changes in capacity, or ASMs. However, the Company's Operating expenses are largely fixed once flight schedules are published, and the Company has experienced significant ASM reductions as a result of flight schedule adjustments related to the COVID-19 pandemic. Flight schedule adjustments are expected to drive unit cost pressure for the duration of the COVID-19 pandemic, excluding any impacts associated with grants received under the CARES Act, the Payroll Support Program Extension, the PSP3 Payroll Support Program, or other legislation. See "COVID-19 Pandemic" above and Note 2 to the unaudited Condensed Consolidated Financial Statements for further information. The following table presents the Company's Operating expenses per ASM for the first quarter of 2021 and 2020, followed by explanations of these changes on a per ASM basis and dollar basis:
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Three months ended March 31, Per ASM
change Percent
change
(in cents, except for percentages) 2021 2020
Salaries, wages, and benefits 6.79 ¢ 5.24 ¢ 1.55 ¢ 29.6 %
Payroll support and voluntary Employee programs, net (6.25) — (6.25) n.m.
Fuel and oil 2.02 2.46 (0.44) (17.9)
Maintenance materials and repairs 0.75 0.77 (0.02) (2.6)
Landing fees and airport rentals 1.35 0.96 0.39 40.6
Depreciation and amortization 1.35 0.88 0.47 53.4
Other operating expenses, net 1.99 1.98 0.01 0.5
Total 8.00 ¢ 12.29 ¢ (4.29) ¢ (34.9) %
Operating expenses per ASM for first quarter 2021 decreased by 34.9 percent, compared with first quarter 2020. The year-over-year unit cost decrease in first quarter 2021 was primarily driven by the funding received through the Payroll Support Program Extension, coupled with decreases in market jet fuel prices. These decreases were partially offset by significant capacity reductions as a result of the COVID-19 pandemic. See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information. Operating expenses per ASM for first quarter 2021, excluding Fuel and oil expense, profitsharing, and special items, (a non-GAAP financial measure), increased 23.4 percent, compared with first quarter 2020. See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures. The majority of the year-over-year unit cost increase in first quarter 2021 was driven by significant capacity reductions due to the COVID-19 pandemic.
Salaries, wages, and benefits expense for first quarter 2021 decreased by $283 million, or 15.3 percent, compared with first quarter 2020. On a per ASM basis, first quarter 2021 Salaries, wages, and benefits expense increased 29.6 percent, compared with first quarter 2020, as the dollar decrease was more than offset by the 34.5 percent decrease in capacity. On a dollar basis, the decrease was primarily driven by lower salaries, wages, and benefits expense, as a result of Voluntary Separation Program 2020, Extended ETO, and other time off programs offered by the Company.
Payroll support and voluntary Employee programs, net for first quarter 2021 was a net decrease to expense of $1.4 billion, compared with no amounts for first quarter 2020. On a per ASM basis, first quarter 2021 Payroll support and voluntary Employee programs, net was a net reduction of 6.25 cents. During first quarter 2021, the items included in this line item include:
• $1.2 billion of Payroll Support Program Extension proceeds;
• $116 million of the Employee Retention Tax Credit for continuing to pay Employees' salaries during the time they were not working as a result of the decline in business due to the pandemic; and
• A $115 million net reduction in the Extended ETO liability.
See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information.
Fuel and oil expense for first quarter 2021 decreased by $401 million, or 46.1 percent, compared with first quarter 2020. On a per ASM basis, first quarter 2021 Fuel and oil expense decreased 17.9 percent, due primarily to lower market jet fuel prices. On a dollar basis, the majority of the decrease was attributable to a significant decrease in fuel gallons consumed, and the remainder of the decrease was due to lower market jet fuel prices. The following table provides more information on the Company's economic fuel cost per gallon, including the impact of fuel hedging premium expense and fuel derivative contracts:
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Three months ended March 31,
2021 2020
Economic fuel costs per gallon $ 1.70 $ 1.90
Fuel hedging premium expense (in millions) $ 25 $ 24
Fuel hedging premium expense per gallon $ 0.09 $ 0.05
Fuel hedging cash settlement gains per gallon $ 0.01 $ —
See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures. The Company had a reduced schedule and lower Load factors during first quarter 2021, which, combined with the Company continuing to operate fewer of its oldest, least fuel-efficient Boeing 737-700 aircraft as a result of capacity reductions due to the COVID-19 pandemic, resulted in a year-over-year improvement of 4.7 percent in ASMs per gallons ("fuel efficiency") in first quarter 2021. While the Company expects to return more of its 737-700 aircraft to service to support planned capacity increases, second quarter 2021 fuel efficiency is currently estimated to be sequentially in line with first quarter 2021, on a nominal basis, also taking into account the return of its most fuel-efficient aircraft, the MAX, to service in March 2021.
As of April 15, 2021, on an economic basis, the Company had derivative contracts in place related to expected future fuel consumption as follows:
Period Maximum fuel hedged (gallons in millions) (a)(b)
Remainder of 2021 962
2022 1,220
2023 643
Beyond 2023 106
(a) The Company’s hedge position includes prices at which the Company considers "catastrophic" coverage. The maximum gallons provided are not indicative of the Company's hedge coverage at every price, but represent the highest level of coverage at a single price. See Note 4 to the unaudited Condensed Consolidated Financial Statements for further information.
(b) The Company holds derivative contracts at various Brent crude oil, West Texas Intermediate ("WTI") crude oil, and heating oil price levels to provide protection against energy market price fluctuations. These gallons that are covered by derivative contracts represent the maximum number of gallons hedged for each respective period, which may be at different strike prices and at strike prices materially higher than the current market prices. The volume of gallons covered by derivative contracts that ultimately get exercised in any given period may vary significantly from the volumes provided, as market prices and the Company's fuel consumption fluctuates.
As a result of applying hedge accounting in prior periods, the Company has amounts in Accumulated other comprehensive income (loss) ("AOCI") that will be recognized in earnings in future periods when the underlying fuel derivative contracts settle. The following table displays the Company's estimated fair value of remaining fuel derivative contracts (not considering the impact of the cash collateral provided to or received from counterparties—see Note 4 to the unaudited Condensed Consolidated Financial Statements for further information), as well as the deferred amounts in AOCI at March 31, 2021, and the expected future periods in which these items are expected to settle and/or be recognized in earnings (in millions):
Year Fair value of fuel derivative contracts at March 31, 2021 Amount of gains (losses) deferred in AOCI at March 31, 2021 (net of tax)
Remainder of 2021 $ 33 $ (26)
2022 140 28
2023 64 5
Beyond 2023 12 2
Total $ 249 $ 9
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Assuming no changes to the Company's current fuel derivative portfolio, but including all previous hedge activity for fuel derivatives that have not yet settled, and considering only the expected net cash receipts related to hedges that will settle, the Company is providing the below sensitivity table for second quarter 2021 and full year 2021 jet fuel prices at different crude oil assumptions as of April 15, 2021, and for expected premium costs associated with settling contracts.
Estimated economic fuel price per gallon,
including taxes and fuel hedging premiums (e)
Average Brent Crude Oil
price per barrel Second Quarter 2021 (c) Full Year 2021 (d)
$40 $1.35 - $1.45 $1.35 - $1.45
$50 $1.55 - $1.65 $1.55 - $1.65
Current Market (a) $1.85 - $1.95 $1.85 - $1.95
$70 $1.90 - $2.00 $1.90 - $2.00
$80 $2.00 - $2.10 $2.00 - $2.10
$90 $2.10 - $2.20 $2.10 - $2.20
Estimated fuel hedging premium expense per gallon (b) $0.06 (f)
Estimated premium costs (b) $25 million $100 million
(a) Brent crude oil average market prices as of April 15, 2021, were approximately $66 and $64 per barrel for second quarter 2021 and full year 2021, respectively.
(b) Fuel hedging premium expense per gallon is included in the Company's estimated economic fuel price per gallon estimates above.
(c) Based on the Company's existing fuel derivative contracts and market prices as of April 15, 2021, second quarter 2021 economic fuel costs are estimated to be in the $1.85 to $1.95 per gallon range, including fuel hedging premium expense of approximately $25 million, or $0.06 per gallon, and $0.01 per gallon in favorable cash settlements from fuel derivative contracts. See Note Regarding Use of Non-GAAP Financial Measures.
(d) Based on the Company's existing fuel derivative contracts and market prices as of April 15, 2021, annual 2021 economic fuel costs are estimated to be in the $1.85 to $1.95 per gallon range, including fuel hedging premium expense of approximately $100 million and no cash settlements from fuel derivative contracts, on a per gallon basis. See Note Regarding Use of Non-GAAP Financial Measures.
(e) Economic fuel cost projections do not reflect the potential impact of special items because the Company cannot reliably predict or estimate the hedge accounting impact associated with the volatility of the energy markets, the impact of COVID-19 cases on air travel demand, or the impact to the Company's financial statements in future periods. Accordingly, the Company believes a reconciliation of non-GAAP financial measures to the equivalent GAAP financial measures for projected results is not meaningful or available without unreasonable effort. See Note Regarding Use of Non-GAAP Financial Measures.
(f) Due to continued uncertainty regarding available seat mile plans for 2021, the Company cannot reasonably provide an estimate for its full year 2021 fuel hedging premium expense per gallon.
Maintenance materials and repairs expense for first quarter 2021 decreased by $99 million, or 36.4 percent, compared with first quarter 2020. On a per ASM basis, Maintenance materials and repairs expense decreased 2.6 percent, as the dollar decrease was largely offset by the 34.5 percent decrease in capacity in response to the COVID-19 pandemic. On a dollar basis, approximately 50 percent of the decrease was due to lower engine maintenance expense due to the reduction in flight hours and the majority of the remainder of the decrease was due to reduced operations and placing a portion of the fleet in storage.
Landing fees and airport rentals expense for first quarter 2021 decreased by $26 million, or 7.7 percent, compared with first quarter 2020. On a per ASM basis, Landing fees and airport rentals expense increased 40.6 percent, compared with first quarter 2020, as the dollar decrease was more than offset by the 34.5 percent decrease in capacity in response to the COVID-19 pandemic and as a significant portion of space rentals are essentially fixed in the short term. On a dollar basis, the decrease was primarily due to lower landing fees as a result of the reduced number of Trips flown in first quarter 2021 as a result of the COVID-19 pandemic.
Depreciation and amortization expense for first quarter 2021 increased by $1 million, or 0.3 percent, compared with first quarter 2020. On a per ASM basis, Depreciation and amortization expense increased by 53.4 percent, compared
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with first quarter 2020, primarily as a result of the 34.5 percent decrease in capacity in response to the COVID-19 pandemic and continued storage of a portion of the Company's fleet. On a dollar basis, Depreciation and amortization expense was relatively flat as the Company reduced capital expenditures in response to the pandemic.
Other operating expenses, net for first quarter 2021 decreased by $235 million, or 33.7 percent, compared with first quarter 2020. Included within this line item was aircraft rentals expense in the amounts of $51 million and $57 million for the periods ended March 31, 2021 and 2020, respectively. On a per ASM basis, Other operating expenses, net increased 0.5 percent, compared with first quarter 2020, in line with the 34.5 percent decrease in capacity in response to the COVID-19 pandemic. On a dollar basis, approximately 70 percent of the decrease was due to various savings as a result of supporting a reduced operation and other efforts to reduce discretionary spend. The majority of the remainder of the decrease was due to lower credit card fees driven by a significant reduction in revenues associated with the COVID-19 pandemic.
Other
Other expenses (income) include interest expense, capitalized interest, interest income, and other gains and losses.
Interest expense for first quarter 2021 increased by $86 million, compared with first quarter 2020, primarily due to higher debt balances. Based on current debt outstanding and current market interest rates, the Company currently expects second quarter 2021 interest expense to be approximately $115 million.
Capitalized interest for first quarter 2021 increased by $6 million, compared with first quarter 2020, primarily due to Boeing resuming production of the Company's undelivered MAX aircraft.
Interest income for first quarter 2021 decreased by $15 million, compared with first quarter 2020, due to lower interest rates.
Other (gains) losses, net, primarily includes amounts recorded as a result of the Company's hedging activities. See Note 4 to the unaudited Condensed Consolidated Financial Statements for further information on the Company's hedging activities. The following table displays the components of Other (gains) losses, net, for the three months ended March 31, 2021 and 2020:
Three months ended March 31,
(in millions) 2021 2020
Mark-to-market impact from fuel contracts settling in current and future periods $ 1 $ 2
Premium cost of fuel contracts not designated as hedges 11 —
Mark-to-market impact from interest rate swap agreements — 24
Other (a) (60) 2
$ (48) $ 28
(a) See Note 1 to the unaudited Condensed Consolidated Financial Statements for further information.
Income Taxes
The Company's effective tax rate was approximately 20.6 percent in first quarter 2021, compared with 34.3 percent in first quarter 2020. The prior year higher first quarter tax rate was a result of the anticipated Net operating loss for full year 2020, which allowed the Company to carry back losses to receive tax refunds on amounts paid from 2015 through 2019. The Company currently estimates its annual 2021 effective tax rate to be approximately 23 percent.
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Reconciliation of Reported Amounts to Non-GAAP Financial Measures (excluding special items) (unaudited)
(in millions, except per share amounts and per ASM amounts)
Three months ended March 31, Percent
2021 2020 Change
Fuel and oil expense, unhedged $ 464 $ 846
Add: Premium cost of fuel contracts designated as hedges 14 24
Deduct: Fuel hedge gains included in Fuel and oil expense, net (9) —
Fuel and oil expense, as reported $ 469 $ 870
Add: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (a) 8 —
Add: Premium cost of fuel contracts not designated as hedges 11 —
Fuel and oil expense, excluding special items (economic) $ 488 $ 870 (43.9)
Total operating expenses, net, as reported $ 1,853 $ 4,344
Add: Payroll support and voluntary Employee programs, net
1,448 —
Add: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (a) 8 —
Add: Interest rate swap agreements terminated in a prior period, but for which losses were reclassified from AOCI (a) 1 —
Add: Premium cost of fuel contracts not designated as hedges 11 —
Total operating expenses, excluding special items $ 3,321 $ 4,344 (23.5)%
Operating income (loss), as reported $ 199 $ (110)
Deduct: Payroll support and voluntary Employee programs, net (1,448) —
Deduct: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (a) (8) —
Deduct: Interest rate swap agreements terminated in a prior period, but for which losses were reclassified from AOCI (a) (1) —
Deduct: Premium cost of fuel contracts not designated as hedges (11) —
Operating loss, excluding special items $ (1,269) $ (110) n.m.
Other (gains) losses, net, as reported $ (48) $ 28
Deduct: Mark-to-market impact from fuel contracts settling in current and future periods (a) (1) (2)
Deduct: Premium cost of fuel contracts not designated as hedges (11) —
Deduct: Mark-to-market impact from interest rate swap agreements — (24)
Other (gains) losses, net, excluding special items $ (60) $ 2 n.m.
Income (loss) before income taxes, as reported $ 146 $ (144)
Deduct: Payroll support and voluntary Employee programs, net (1,448) —
Deduct: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (a) (8) —
Deduct: Interest rate swap agreements terminated in a prior period, but for which losses were reclassified from AOCI (a) (1) —
Add: Mark-to-market impact from fuel contracts settling in current and future periods 1 2
Add: Mark-to-market impact from interest rate swap agreements — 24
Loss before income taxes, excluding special items $ (1,310) $ (118) n.m.
Provision (benefit) for income taxes, as reported $ 30 $ (50)
Add (Deduct): Net income (loss) tax impact of fuel and special items (b) (325) 9
Benefit for income taxes, net, excluding special items $ (295) $ (41) n.m.
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Three months ended March 31, Percent
2021 2020 Change
Net income (loss), as reported $ 116 $ (94)
Deduct: Payroll support and voluntary Employee programs, net (1,448) —
Deduct: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (a) (8) —
Deduct: Interest rate swap agreements terminated in a prior period, but for which losses were reclassified from AOCI (a) (1) —
Add: Mark-to-market impact from fuel contracts settling in current and future periods (a) 1 2
Add: Mark-to-market impact from interest rate swap agreements — 24
Add (Deduct): Net income (loss) tax impact of special items (b) 325 (9)
Net loss, excluding special items $ (1,015) $ (77) n.m.
Net income (loss) per share, diluted, as reported $ 0.19 $ (0.18)
Add (Deduct): Impact of special items (2.38) 0.05
Deduct: Net impact of net income (loss) above from fuel contracts divided by dilutive shares (0.01) —
Add (Deduct): Net income (loss) tax impact of special items (b) 0.53 (0.02)
Deduct: GAAP to Non-GAAP diluted weighted average shares difference (c) (0.05) —
Net loss per share, diluted, excluding special items $ (1.72) $ (0.15) n.m.
Operating expenses per ASM (cents) 8.00 ¢ 12.29 ¢
Add: Impact of special items 6.25 —
Deduct: Fuel and oil expense divided by ASMs (2.02) (2.46)
Deduct: Profitsharing expense divided by ASMs (0.10) —
Operating expenses per ASM, excluding Fuel and oil expense, profitsharing, and special items (cents) 12.13 ¢ 9.83 ¢ 23.4%
(a) See Note 4 to the unaudited Condensed Consolidated Financial Statements for further information.
(b) Tax amounts for each individual special item are calculated at the Company's effective rate for the applicable period and totaled in this line item.
(c) Adjustment related to GAAP and Non-GAAP diluted weighted average shares difference, due to the Company being in a Net income position on a GAAP basis versus a Net loss position on a Non-GAAP basis. See Note 7 to the unaudited Condensed Consolidated Financial Statements for further information.
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Note Regarding Use of Non-GAAP Financial Measures
The Company's unaudited Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). These GAAP financial statements may include (i) unrealized noncash adjustments and reclassifications, which can be significant, as a result of accounting requirements and elections made under accounting pronouncements relating to derivative instruments and hedging and (ii) other charges and benefits the Company believes are unusual and/or infrequent in nature and thus may make comparisons to its prior or future performance difficult.
As a result, the Company also provides financial information in this filing that was not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. The Company provides supplemental non-GAAP financial information (also referred to as "excluding special items"), including results that it refers to as "economic," which the Company's management utilizes to evaluate its ongoing financial performance and the Company believes provides additional insight to investors as supplemental information to its GAAP results. The non-GAAP measures provided that relate to the Company’s performance on an economic fuel cost basis include Fuel and oil expense, non-GAAP; Total operating expenses, non-GAAP; Operating loss, non-GAAP; Other (gains) losses, net, non-GAAP; Loss before income taxes, non-GAAP; Benefit for income taxes, net, non-GAAP; Net loss, non-GAAP; Net loss per share, diluted, non-GAAP; and Operating expenses per ASM, non-GAAP, excluding Fuel and oil expense and profitsharing (cents). The Company's economic Fuel and oil expense results differ from GAAP results in that they only include the actual cash settlements from fuel hedge contracts - all reflected within Fuel and oil expense in the period of settlement. Thus, Fuel and oil expense on an economic basis has historically been utilized by the Company, as well as some of the other airlines that utilize fuel hedging, as it reflects the Company’s actual net cash outlays for fuel during the applicable period, inclusive of settled fuel derivative contracts. Any net premium costs paid related to option contracts that are designated as hedges are reflected as a component of Fuel and oil expense, for both GAAP and non-GAAP (including economic) purposes in the period of contract settlement. The Company believes these economic results provide further insight into the impact of the Company's fuel hedges on its operating performance and liquidity since they exclude the unrealized, noncash adjustments and reclassifications that are recorded in GAAP results in accordance with accounting guidance relating to derivative instruments, and they reflect all cash settlements related to fuel derivative contracts within Fuel and oil expense. This enables the Company's management, as well as investors and analysts, to consistently assess the Company's operating performance on a year-over-year or quarter-over-quarter basis after considering all efforts in place to manage fuel expense. However, because these measures are not determined in accordance with GAAP, such measures are susceptible to varying calculations, and not all companies calculate the measures in the same manner. As a result, the aforementioned measures, as presented, may not be directly comparable to similarly titled measures presented by other companies.
Further information on (i) the Company's fuel hedging program, (ii) the requirements of accounting for derivative instruments, and (iii) the causes of hedge ineffectiveness and/or mark-to-market gains or losses from derivative instruments is included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and Note 4 to the unaudited Condensed Consolidated Financial Statements.
The Company’s GAAP results in the applicable periods may include other charges or benefits that are also deemed "special items," that the Company believes make its results difficult to compare to prior periods, anticipated future periods, or industry trends. Financial measures identified as non-GAAP (or as excluding special items) have been adjusted to exclude special items. For the periods presented, in addition to the items discussed above, special items include:
1. Proceeds related to the Payroll Support Program Extension, which were used to pay a portion of Employee salaries, wages, and benefits;
2. Charges and adjustments to previously accrued amounts related to the Company's extended leave program;
3. Adjustments for prior period losses reclassified from AOCI associated with forward-starting interest rate swap agreements that were terminated in prior periods related to eleven 737 MAX 8 aircraft leases; and
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4. Unrealized losses related to nine forward-starting interest rate swap agreements. During first quarter 2020, the interest rate swap agreements, which were related to nine 737 MAX 8 aircraft leases (with deliveries originally scheduled between June 2020 and September 2020), were de-designated as hedges due to the scheduled delivery range no longer being probable, resulting in the mark-to-market changes being recorded to earnings.
Because management believes special items can distort the trends associated with the Company’s ongoing performance as an airline, the Company believes that evaluation of its financial performance can be enhanced by a supplemental presentation of results that exclude the impact of special items in order to enhance consistency and comparativeness with results in prior periods that do not include such items and as a basis for evaluating operating results in future periods. The following measures are often provided, excluding special items, and utilized by the Company’s management, analysts, and investors to enhance comparability of year-over-year results, as well as to industry trends: Fuel and oil expense, non-GAAP; Total operating expenses, non-GAAP; Operating loss, non-GAAP; Other (gains) losses, net, non-GAAP; Loss before income taxes, non-GAAP; Benefit for income taxes, net, non-GAAP; Net loss, non-GAAP; Net loss per share, diluted, non-GAAP; and Operating expenses per ASM, non-GAAP, excluding Fuel and oil expense and profitsharing (cents).
The Company has also utilized and provided average cash burn and average daily core cash burn which are non-GAAP financial measures. Cash burn is a supplemental measure that most U.S. airlines began providing in 2020 to measure liquidity in light of the negative financial effects of the pandemic. The Company utilizes average daily core cash burn to monitor the performance of its core business as a proxy for its ability to achieve sustainable break-even or positive results on a cash basis. Cash burn methodology may vary by airline, but see the Company's calculation of cash burn below:
(in millions, except for Days in the period) Three months ended March 31, 2021
Loss before income taxes, non-GAAP $ (1,310)
Depreciation and amortization expense 312
Capital expenditures ( 95 )
Debt service payments (67)
Core cash burn $ (1,160)
Days in the period 90
Average daily core cash burn $ (13)
Core cash burn, prior to changes in working capital $ (1,160)
Increase in Air traffic liability 599
Payments associated with Voluntary Employee Programs (188)
Other (a) 315
Core cash burn, adjusted for changes in working capital $ (434)
Days in the period 90
Average daily core cash burn, adjusted for changes in working capital $ (5)
(a) Adjustment primarily related to the prepayment in fourth quarter 2020 from Chase for Rapid Reward points expected to be purchased in 2021. See Note 9 to the unaudited condensed Consolidated Financial Statements for further information.
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Liquidity and Capital Resources
The enormous impact of the COVID-19 pandemic on the U.S. travel industry created an urgent liquidity crisis for the entire airline industry, including the Company. However, due to the Company's pre-pandemic low balance sheet leverage, large base of unencumbered assets, and investment-grade credit ratings, the Company was able to quickly access additional liquidity during 2020 and 2021, as Customer cancellations spiked and sales and revenues dropped while the Company continued to experience significant fixed operating expenses. See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information regarding the impact of the COVID-19 pandemic and assistance obtained under the CARES Act, Payroll Support Program Extension, and PSP3 Payroll Support Program. Much uncertainty remains about the time it will take for air travel demand to recover, and the Company continues to assess its immediate and near-term liquidity needs. The Company also continues to assess various sources and options including public and private financings to bolster its liquidity and believes that, given current market conditions, it has opportunities to do so.
Net cash provided by operating activities was $645 million for the three months ended March 31, 2021, compared with $377 million used in operating activities in the same prior year period. Operating cash inflows are primarily derived from providing air transportation to Customers. The vast majority of tickets are purchased prior to the day on which travel is provided and, in some cases, several months before the anticipated travel date. Operating cash outflows are related to the recurring expenses of airline operations. The operating cash flows for both periods presented, were affected primarily by the COVID-19 pandemic, which resulted in a significant drop in travel demand, sales, and revenues. Operating cash flows for the three months ended March 31, 2021, included $1.2 billion in Payroll Support Program Extension grant proceeds received as part of the Consolidated Appropriations Act, 2021 of which nearly all of this direct payroll support was used to offset eligible costs and thus included in operating activities, with the remaining $23 million allocated to the value of PSP2 Warrants issued and thus included in financing activities. These net increases in operating cash flows were also a result of a $599 million increase in Air traffic liability driven by increased ticket sales related to an increase in leisure travel demand. For the three months ended March 31, 2020, the operating cash flows were affected primarily by a $1.3 billion decrease in Accounts payable and accrued expenses, primarily due to the Company's payout of its 2019 $667 million ProfitSharing distribution to Employees in March 2020, as well as a significant decline in amounts payable for passenger excise taxes and segment fees as a result of the March 2020 drop in passenger ticket sales. These were partially offset by a $701 million increase in Air traffic liability. The increase in Air traffic liability resulted from January and February 2020 bookings, which were then significantly impacted by a decline in Customer demand and increased trip cancellations attributable to concerns relating to the COVID-19 pandemic, primarily in March 2020. Historically, the Company has also used net cash provided by operations to fund stock repurchases and pay dividends; however these shareholder return activities have been suspended due to restrictions associated with the payroll assistance under the CARES Act, Payroll Support Program Extension, and PSP3 Payroll Support Program. See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information.
Net cash used in investing activities totaled $201 million during the three months ended March 31, 2021, compared with $5 million used in the same prior year period. Investing activities in both years included Capital expenditures, and changes in the balance of the Company's short-term and noncurrent investments. During the three months ended March 31, 2021, Capital expenditures were $95 million, compared with $224 million in the same prior year period. Capital expenditures decreased, year-over-year, largely due to a decrease in technology project expenditures and several projects being placed into service since March 31, 2020. In addition, the Company did not make progress payments on future deliveries during the three months ended March 31, 2021, compared to the same prior year period, when progress payments were made. See Notes 2 and 11 to the unaudited Condensed Consolidated Financial Statements for further information. As a result of previously agreed upon delivery credits provided by Boeing to the Company due to the settlement of 2020 estimated damages relating to the FAA grounding of the 737 MAX aircraft and progress payments made to date on undelivered aircraft, the Company currently estimates no aircraft capital expenditures in 2021. Therefore, the Company currently estimates its annual 2021 capital expenditures to be approximately $500 million, driven primarily by technology, facilities, and operational investments. The Company cannot predict when the effects of the COVID-19 pandemic on air travel will end, but
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the Company expects that its capital expenditures will increase from current levels if U.S. air travel returns to pre-pandemic levels.
Net cash provided by financing activities was $464 million during the three months ended March 31, 2021, compared with $1.8 billion provided by financing activities for the same prior year period. During the three months ended March 31, 2021, the Company borrowed $488 million of loan proceeds under the Payroll Support Program Extension. See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information. The Company repaid $67 million in debt and finance lease obligations during the three months ended March 31, 2021, and is scheduled to repay approximately $153 million in debt and finance lease obligations during the remainder of 2021. During the three months ended March 31, 2020, the Company borrowed $2.5 billion, through various transactions, in order to improve its liquidity position as a result of the onset of the pandemic. The Company also repurchased $451 million of its outstanding common stock, paid $188 million in cash dividends to Shareholders, and repaid $78 million in debt and finance lease obligations.
Average daily core cash burn was approximately $13 million in first quarter 2021, compared with fourth quarter 2020 average core cash burn of $12 million per day. Average core cash burn was approximately $9 million per day in March 2021. Including changes in working capital — most notably, cash flow from future bookings — average core cash flow turned positive in March 2021, and the Company generated approximately $4 million per day, as revenue and booking trends improved. The Company's average core cash burn (which excludes changes in working capital) in second quarter 2021 is currently estimated to be in the range of approximately $2 million to $4 million per day. Based on current booking trends and cost outlook, the Company is hopeful it can achieve breakeven average core cash flow, or better, by June 2021. Cash burn is a supplemental measure that most U.S. airlines began providing in 2020 to measure liquidity in light of the negative financial effects of the pandemic. Average daily core cash burn is calculated as Loss before income taxes, non-GAAP, adjusted for Depreciation and amortization expense; Capital expenditures; and adjusted amortizing debt service payments; divided by the number of days in the period. The Company utilizes average daily core cash burn to monitor the performance of its core business as a proxy for its ability to achieve sustainable break-even or positive results on a cash basis. Average core cash burn projections do not reflect the potential impact of special items because the Company cannot reliably predict or estimate those items or expenses or their impact to its financial statements in future periods. Accordingly, the Company believes a reconciliation of non-GAAP financial measures to the equivalent GAAP financial measures for projected results is not meaningful or available without unreasonable effort. See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures including the cash burn formula.
Utilizing an alternative cash burn approach, which adjusts for changes in working capital, among other items, the Company's first quarter 2021 daily cash burn was approximately $5 million. Cash burn methodology varies by airline, and the Company’s first quarter 2021 average daily core cash burn of $13 million may differ materially by utilizing cash burn calculations that adjust for changes in working capital.
The Company is a "well-known seasoned issuer" and currently has an effective shelf registration statement registering an indeterminate amount of debt and equity securities for future sales. The Company currently intends to use the proceeds from any future securities sales off this shelf registration statement for general corporate purposes.
The Company has access to $1.0 billion under its Amended and Restated Revolving Credit Facility, as amended (the "Revolving Credit Facility"). The Revolving Credit Facility has an accordion feature that would allow the Company, subject to, among other things, the procurement of incremental commitments, to increase the size of the facility to $1.5 billion. Interest on the facility is based on the Company's credit ratings at the time of borrowing. At the Company's current ratings, the interest cost would be LIBOR plus a spread of 200.0 basis points. The facility contains a financial covenant to maintain total liquidity, as defined in the Revolving Credit Facility, of $1.5 billion at all times under the Revolving Credit Facility; the Company was compliant with this requirement as of March 31, 2021. There were no amounts outstanding under the Revolving Credit Facility as of March 31, 2021.
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Although not the case at March 31, 2021, due to the Company's significant financing activities, the Company has historically carried a working capital deficit, in which its current liabilities exceed its current assets. This is common within the airline industry and is primarily due to the nature of the Air traffic liability account, which is related to advance ticket sales, unused funds available to Customers, and loyalty deferred revenue, which are performance obligations for future Customer flights, do not require future settlement in cash, and are mostly nonrefundable. See Note 6 to the unaudited Condensed Consolidated Financial Statements for further information. The Company has various options available to meet its capital and operating commitments, including unrestricted cash and short-term investments of $14.3 billion as of March 31, 2021, and anticipated future internally generated funds from operations. However, the COVID-19 pandemic continues to evolve and could have a material adverse impact on the Company's ability to meet its capital and operating commitments. See Note 2 to the unaudited Condensed Consolidated Financial Statements for further information on the impacts of the COVID-19 pandemic. The Company will continue to consider various financing options to maximize liquidity and supplement cash requirements, as necessary.
On March 24, 2021, the Company entered into the Supplement to its aircraft purchase agreement with Boeing relating to the Company's purchase of Boeing 737 MAX 7 and 737 MAX 8 aircraft. Pursuant to the Supplement (i) the Company added 100 firm orders for the MAX 7, with the first 30 to be delivered in 2022; (ii) the Company added 155 MAX aircraft options; (iii) the order book was extended to include deliveries through 2031; and (iv) the Company converted 70 MAX 8 firm orders to MAX 7 firm orders. The Supplement also includes certain confidential credits, discounts, and other concessions provided to the Company by Boeing.
The following table details information on the aircraft in the Company's fleet as of March 31, 2021:
Average
Age (Yrs) Number
of Aircraft Number
Owned Number
Leased
Type Seats
737-700 143 16 462 (a) 370 92
737-800 175 6 207 190 17
737 MAX 8 175 2 61 (a) 33 28
Totals 12 730 593 137
(a) Included 59 Boeing 737 Next Generation and 7 Boeing 737 MAX 8 aircraft removed from active fleet and in temporary storage as of March 31, 2021.
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Cautionary Statement Regarding Forward-Looking Statements
This Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on, and include statements about, the Company's estimates, expectations, beliefs, intentions, and strategies for the future, and the assumptions underlying these forward-looking statements. Specific forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, statements related to the following:
• the Company’s expectations related to payroll support pursuant to the American Rescue Plan Act of 2021;
• the Company’s financial outlook, expectations, and projected results of operations, including underlying assumptions and estimates, in particular related to the anticipated lessening of the negative impact of the COVID-19 pandemic;
• the Company’s capacity plans and expectations, including underlying assumptions and estimates, in particular related to the anticipated lessening of the negative impact of the COVID-19 pandemic on demand and bookings;
• the Company’s fleet plans and related expectations;
• the Company's initiatives, including its environmental sustainability goal;
• the Company's network plans and related expectations;
• the Company’s plans, expectations, and estimates related to fuel efficiency and fuel costs and the Company’s related management of risk associated with changing jet fuel prices, including the assumptions underlying the estimates;
• the Company's expectations with respect to capital expenditures, cash burn/cash flows, and liquidity, including its ability to meet its ongoing capital, operating, and other obligations, and the Company’s anticipated needs for, and sources of, funds;
• the Company's assessment of market risks; and
• the Company's plans and expectations related to legal and regulatory proceedings.
While management believes these forward-looking statements are reasonable as and when made, forward-looking statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual results may differ materially from what is expressed in or indicated by the Company's forward-looking statements or from historical experience or the Company's present expectations. Factors that could cause these differences include, among others:
• the extent of the COVID-19 pandemic, including the duration, spread, severity, and any recurrence of the COVID-19 pandemic, including through any new variant strains of the underlying virus; the effectiveness and availability of vaccines; the duration and scope of related government orders and restrictions; the duration and scope of the Company's actions to address Customer and Employee health concerns; the extent of the impact of the COVID-19 pandemic on overall demand for air travel and the Company's related business plans and decisions; any negative impact of the COVID-19 pandemic on the Company's ability to retain key Employees; and any negative impact of the COVID-19 pandemic on the Company's access to capital;
• the impact of fears or actual outbreaks of other diseases, economic conditions, extreme or severe weather and natural disasters, fears of terrorism or war, actions of competitors, consumer perception, and other factors beyond the Company's control, on consumer behavior and the Company's results of operations and business decisions, plans, strategies, and results;
• the Company's dependence on Boeing with respect to the Company's fleet order book, delivery schedule, and other performance requirements under its agreements with the Company, including with respect to the Company’s ability to return all of its MAX aircraft to revenue service;
• the Company's and Boeing's dependence on other third-party providers to perform in accordance with expectations in connection with the manufacture and delivery of aircraft;
• the impact of the Company's obligations and restrictions related to its participation in the U.S. Treasury's payroll support programs, including restrictions and obligations associated with its loans from, and warrants
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issued to, the U.S. Treasury; and any related negative impact on the Company’ ability to retain key Employees;
• the enactment or adoption of future laws, statutes, and regulations and interpretations or enforcement of current and future laws, statutes, and regulations that affect the terms or application of the Company’s payroll support agreements with the U.S. Treasury and that may have a material adverse effect on the Company;
• the impact of governmental actions and governmental regulations on the Company's plans, strategies, financial results, and operations;
• the Company's ability to timely and effectively implement, transition, and maintain the necessary information technology systems and infrastructure to support its operations and initiatives;
• the impact of fuel price changes, fuel price volatility, volatility of commodities used by the Company for hedging jet fuel, and any changes to the Company’s fuel hedging strategies and positions, on the Company's business plans and results of operations; and
• other factors as set forth in the Company's filings with the Securities and Exchange Commission, including the detailed factors discussed under the heading “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
Caution should be taken not to place undue reliance on the Company's forward-looking statements, which represent the Company's views only as of the date this report is filed. The Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
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