Southwest told analysts that constrained capacity helped drive record revenues, admitted roughly 10% had more delays than before the pandemic

Southwest’s CEO boasted their revenues were up 13.9% from Q2 2019 despite capacity that was still 7% lower. “Bob Jordan — Chief Executive Officer: Andrew will cover the revenue details, but Q2 operating revenues increased 13.9% versus Q2 2019 to an all-time quarterly record of $6.7 billion despite Q2 managed business revenue still down 24% and capacity that was still down about 7%. We also produced an all-time record quarterly net income, excluding special items, of $825 million. It is all because of the people at Southwest Airlines, and I want to just say a huge thank you to them for a job very well done. I want to congratulate them on the progress that we’ve made together. (Southwest Airlines Q2 2022 Earnings Call, 7/28/2022)

Southwest’s CEO told analysts the company was “laser-focused on walking down fleet and capacity plans, moderating our overall hiring.”“Bob Jordan — Chief Executive Officer: Mike will cover the operations in more detail, but we are benefiting from getting better staffed, getting new employees through training and on the front line, adding more short-haul flying to provide better network stability and adding more flying between crew bases. We know that we’ve got work to do on the efficiency side as we focus on 2023, and we’re laser-focused on walking down fleet and capacity plans, moderating our overall hiring, optimizing staffing to flight schedules, ringing out cost inefficiencies and returning to our historic efficiency levels by the end of next year. But again, I just want to thank our amazing people for their hard work as we continue to improve our operational reliability. And I want to thank our partners at the FAA and in the administration for working to overcome challenges and continuing to improve the airspace as travel demand returns.” (Southwest Airlines Q2 2022 Earnings Call, 7/28/2022)

Southwest’s CFO noted the “demand surge, coupled with constrained capacity, resulted in a strong yield environment and record quarterly operating revenues of $6.7 billion.” “Tammy Romo — Executive Vice President and Chief Financial Officer Thank you, Bob, and hello, everyone. First, I’d also like to thank our employees for their outstanding efforts this quarter, which resulted in solid operational and record financial performance. The demand surge, coupled with constrained capacity, resulted in a strong yield environment and record quarterly operating revenues of $6.7 billion. The record revenue performance drove record quarterly net income, excluding special items, of $825 million despite higher fuel and inflationary cost pressures.” (Southwest Airlines Q2 2022 Earnings Call, 7/28/2022)

Southwest told analysts that third quarter capacity “are expected to be roughly in line with 2019 levels.” “Tammy Romo — Executive Vice President and Chief Financial Officer: Taking a look at nonfuel costs, second quarter CASM-X was favorable to our previous guidance range at up 13.1% compared with second quarter 2019 and due to lower-than-anticipated benefit cost and the shifting of some maintenance costs into the second half of this year. For our third quarter, we currently estimate nonfuel CASM-X to increase in the range of 12% to 15% when compared with 2019 levels. More than half of that increase continues to be driven by inflationary pressures, primarily in higher rates for our labor benefits and airports. The remainder of the CASM-X increase is attributable to headwinds from operating at suboptimal productivity levels as we continue to work to get adequately staffed and our new employees trained while third quarter capacity levels are expected to be roughly in line with 2019 levels. (Southwest Airlines Q2 2022 Earnings Call, 7/28/2022)

Southwest told analysts the airline’s capacity would only be 85% restored by the end of the year. “Andrew Watterson — Executive Vice President and Chief Commercial Officer: Our Q3 capacity is roughly flat with Q3 2019, and our Q4 capacity is expected to be down 1% to 2% versus Q4 2019. Our flight schedule is currently published through March 8. And based on current plans, January and February 2023 capacity is flat to January and February 2019. On a year-over-year basis, we expect Q1 2023 capacity to increase 10% versus Q1 2022. We are still early in our 2023 planning process, but that gives you an idea of where we expect to begin the year in terms of capacity. In terms of network restoration, and based on our full year 2020 capacity guidance of down 4% versus 2019, we continue to expect to be roughly 85% restored by the end of this year. While capacity levels are in line with 2019 in the second half of this year, our network won’t be fully restored until at least the end of 2023 as we continue to rebuild the vast majority of flights we cut during the pandemic to fund new city growth. And with that, I’ll turn it over to Mike.” (Southwest Airlines Q2 2022 Earnings Call, 7/28/2022)

Southwest’s COO told analysts that 10% of their flights were experiencing delays beyond what they had prior to the pandemic. “Mike Van de Ven — Chief Operating Officer: Our tempo is being impacted by the sheer number of new hires just starting work, heavy load factors, the airport environment as well as air traffic control challenges from weather and staffing. If on-time performance was measured within 30 minutes, that 74.3% would improve to 85.3% and that’s in line with our historic pre-pandemic levels. So in practical terms, that means that in today’s environment, almost 90% of our nearly 4,000 flights a day are operating just like they were pre-pandemic, but about 10% of the flights have a 15-minute delay that wasn’t there in pre-pandemic periods. So we’ve made solid progress toward historical operating results, and we’re doing that at nearly pre-pandemic capacity levels.” (Southwest Airlines Q2 2022 Earnings Call, 7/28/2022)

Southwest Executives repeatedly boasted of record revenue in 2022

In Early December, Southwest’s CEO boasted to investors that “our operational performance has really improved since May” and of their “record revenues in the third quarter.” “Robert E. Jordan. CEO & Director: We started the year with the Omicron wave in January — then February, then we had a surge in demand in March that has kept pace since, and business demand has improved meaningfully as well, which is very welcome. And our operational performance has really improved since May, and that just makes everything so much more stable. And all those things in part to our hiring efforts because we’re just so much better staffed. We had record quarterly profits and revenues in the second quarter. We had a solid profit, record revenues in the third quarter, and our outlook here for the fourth quarter is very healthy, which is just terrific.” (Southwest Airlines, Investor Day, 12/7/2022)

Southwest’s CFO: “We set several quarterly records, including all-time high quarterly revenues in second quarter.”  “Tammy Romo, Executive VP & CFO: As Bob mentioned, this has been quite a year. I think we all agree with that. Despite a rocky start due to Omicron, we have made tremendous progress this year. We set several quarterly records, including all-time high quarterly revenues in second quarter. We have performed within our full year 2022 cost guidance that we provided back in January, the only U.S. airline to do so.” (Southwest Airlines, Investor Day, 12/7/2022)

Southwest’s CFO: “Barring any significant unforeseen events, we expect to finish this year very strong, with another quarterly profit and with great momentum going into 2023.” “Tammy Romo, Executive VP & CFO: Adjusting for the impacts from Hurricane Ian, we have been right on our full year 2022 capacity guidance as well. That speaks to better stability with our trends, but it also speaks to the tremendous work of our planning teams at Southwest. I want to thank them for their efforts and countless scenarios that ensured we are making the best possible business decisions, even in this volatile environment. And I see some of them in the room smiling now. Thank you. Barring any significant unforeseen events, we expect to finish this year very strong, with another quarterly profit and with great momentum going into 2023.” (Southwest Airlines, Investor Day, 12/7/2022)

Southwest Executives stressed the importance of restoring their dividend for investors

In December, Southwest’s CEO told investors “our Board announced their approval to reinstate our quarterly dividend of $0.18 per share or $0.72 annually, reflecting confidence in our strategy and in our plans.”  “Robert E. Jordan. CEO & Director: We paid down a significant amount of debt. And this morning, our Board announced their approval to reinstate our quarterly dividend of $0.18 per share or $0.72 annually, reflecting confidence in our strategy and in our plans. And that is actually a reinstatement of our full pre-pandemic dividend level.” (Southwest Airlines, Investor Day, 12/7/2022)

Southwest’s CFO: “we want to enhance our returns to shareholders beyond the value we intend to deliver through growing returns on capital. In that regard, I am thrilled at our Board’s decision to reinstate and approve our pre-pandemic quarterly dividend.” “Tammy Romo, Executive VP & CFO: And lastly and importantly, we want to enhance our returns to shareholders beyond the value we intend to deliver through growing returns on capital. In that regard, I am thrilled at our Board’s decision to reinstate and approve our pre-pandemic quarterly dividend of $0.18 per share or $0.72 per share annualized, which currently represents a roughly 1.8% dividend yield. In closing, all of these plans assume that the travel demand environment remains steady, and we continue producing consistent profits and healthy free cash flow. As we close out 2022, I am grateful we are in a strong position with terrific momentum heading into 2023.” (Southwest Airlines, Investor Day, 12/7/2022)

Southwest’s CEO: “. So we want to restore value to our shareholders. Step one here was restoring the dividend. I’m just absolutely pleased that it’s a full restoration and then we could be the first to do that.”  “Robert E. Jordan, CEO & Director: No. I think we’re committed, obviously, to the — I mean we’re committed to our priorities just like we were before the pandemic ever hit. So we want to restore value to our shareholders. Step one here was restoring the dividend. I’m just absolutely pleased that it’s a full restoration and then we could be the first to do that. I think that’s terrific. Our other priorities, obviously, we need — we talk to some about contracts. We need to invest in our people. For right now, that’s getting contracts done and investing in them. We want to keep investing in the airline, obviously, as you noticed. At some point, it will be appropriate to talk about share repurchases, and that’s not today, but we want to — obviously, our priorities have not changed since pre-pandemic.” (Southwest Airlines, Investor Day, 12/7/2022)

Southwest executives made repeated fateful claims about operational reliability

Southwest’s CEO: “We maintained our commitment to not republish our flight schedule since the summer, and that has paid off in operational reliability. As one example, our Thanksgiving holiday period was one of the best operational performances in our history.”  “Robert E. Jordan. CEO & Director: And then third, we made significant operational performance improvement since May, making great progress towards our historic operational reliability and efficiency. We maintained our commitment, and I think this is very important. We maintained our commitment to not republish our flight schedule since the summer, and that has paid off in operational reliability. As one example, our Thanksgiving holiday period was one of the best operational performances in our history with on-time performance over 86% and a completion factor of 99.7%, which means we only canceled about 70 flights out of 26,000 that were operated in that week, which is just incredible. Fourth, we returned to our #1 customer service position among marketing carriers and remain in the lead this year per the most recent DOT reporting.” (Southwest Airlines, Investor Day, 12/7/2022)

Southwest’s CEO told investors that one of their goals was to “to be consistently reliable and to operate with excellence.” “Robert E. Jordan. CEO & Director: Secondly, we intend to build on our legendary hospitality. Customer loyalty is created when a Southwest employee — and you see this all the time, when a Southwest employee goes above and beyond to meet a customer’s needs. We want our employees to feel empowered and proud of the service that they provide, ensuring it is a service level that our customers can trust day in and day out. Third way to be consistently reliable and to operate with excellence. We are modernizing tools and procedures to better serve our customers and our employees, creating an energetic pace, further improving our famous short-term times all the while keeping safety as our #1 priority. And we intend to stay very well staffed and plan to hire a net 8,000 employees in 2023, including 2,100 pilots.” (Southwest Airlines, Investor Day, 12/7/2022)

Southwest’s COO: “we must maintain that proper staffing in order to publish flight schedules that we can sell and operate without having to continually republish and reaccommodate.”  “Andrew M. Watterson, Chief Operating Officer: So as Bob mentioned, our operational performance since May has been much improved and more stable. Staffing is a big part of that, but stable flight schedules have also helped. We want to run an efficient and reliable operation, and we expect that of ourselves. But we need a few basic pieces to be in place that were missing in 2021 and early ’22. We must maintain that proper staffing in order to publish flight schedules that we can sell and operate without having to continually republish and reaccommodate. And as Bob mentioned, that’s what customers expect, that’s what our employees expect, and that’s been the case since the summer. I feel we have the foundational amount of headcount and flight activity to be able to maintain this higher standard of operational reliability. We’ve been having since May, and we’re on a good path here in the fourth quarter, and we intend to build upon that foundation, which is what I want to cover today.” (Southwest Airlines, Investor Day, 12/7/2022)

Southwest’s COO told analysts that “we have initiatives planned to help lessen the impact of disruptions and improve our recovery time and keep the operation better on track throughout the day.” “Andrew M. Watterson, Chief Operating Officer: So on to operating quality. We have initiatives planned to help lessen the impact of disruptions and improve our recovery time and keep the operation better on track throughout the day. There are 4 main areas where we are focused, and 2 of them are planned for 2023 delivery. Originated performance is a focus on getting the airline started on time each day through continuous improvement. Our people do an excellent job of getting the airline up and running each morning, we have opportunities to relieve some areas of strain. It is difficult for our point-to-point network to catch-up with on-time performance if we do not begin on time.” (Southwest Airlines, Investor Day, 12/7/2022)

Southwest’s COO boasted of the company’s “unique network design to lessen ripple effects throughout the network.”  “Andrew M. Watterson, Chief Operating Officer: Network design and recovery reverts to real-time decision-making that can take advantage of our unique network design to lessen ripple effects throughout the network. And we rolled out a limited number of station command centers a few years ago, essentially want to create an environment across more of our largest airports in an effort to maintain greater volume and complex activities in a coordinated and on-site fashion.” (Southwest Airlines, Investor Day, 12/7/2022)

Southwest’s CFO told analysts the company was trying to get “our staffing to the levels that we need them to be to fully fly the fleet.” “Tammy Romo, Executive VP & CFO: Yes. No, that’s a great question. And I think, hopefully, we’ve — we’re doing an effective job sort of painting the picture for you. Obviously, this year was more of a transition year coming out of the pandemic, starting off the year with Omicron. We’re ending this year on a high note with strong revenue trends. And as we move into next year, we’ve talked a lot about the cost pressures of which a lot of those are tied to just not having — being back our normal productivity levels. So there’s a piece of this of just getting our pilots and getting our traffic — our staffing to the levels that we need them to be to fully fly the fleet.” (Southwest Airlines, Investor Day, 12/7/2022)

Southwest stressed their focus was on growing profit margins and revenue

Southwest CFO: “ our overarching financial goals for next year are to grow profits, margins and return on invested capital versus 2022. Based on current trends and barring any unforeseen events, we believe we have a solid financial plan to accomplish all 3.”  “Tammy Romo, Executive VP & CFO: Moving to our 2023 outlook. We shared a preliminary view as part of our October earnings call, and I am excited to round out our outlook for you here today. First, our overarching financial goals for next year are to grow profits, margins and return on invested capital versus 2022. Based on current trends and barring any unforeseen events, we believe we have a solid financial plan to accomplish all 3. While we are mindful of concerns about economic weakness, so far, we are seeing no signs of a slowdown in travel demand in our current trends.” (Southwest Airlines, Investor Day, 12/7/2022)

 Southwest’s CFO told investors “we intend to produce industry-leading pretax margins and generate returns well in excess of our weighted average cost of capital,” and cited their large cash reserves.  “Tammy Romo, Executive VP & CFO: For capacity, we plan to pursue modest new market growth and leverage our robust network to add depth and breadth and stronghold Southwest markets. For nonfuel costs, we plan to maintain a competitive cost position and continue managing inflationary cost pressures as we grow. For revenue, we plan to generate RASM growth in excess of CASM growth, powered by a robust set of initiatives. We intend to produce industry-leading pretax margins and generate returns well in excess of our weighted average cost of capital. Our balance sheet remains an enduring strength, and we intend to maintain our investment-grade rating by all 3 rating agencies with modest leverage. Though the individual metrics may vary by year, hopefully, this provides you all with more helpful and higher-level framework that speaks to our longer-term annual financial goals for Southwest.” (Southwest Airlines, Investor Day, 12/7/2022)

A Southwest executive said their “ revenue initiatives are paying off very nicely for us” with more passengers paying for higher fare options. “Ryan C. Green, Executive VP & Chief Commercial Officer: Obviously, the revenue initiatives are paying off very nicely for us. But one of the things that we have done here over the recent past is that we have tried to keep — in order to attract these leisure customers, we’ve tried to keep, as best we can, fares in a reasonable range that would incent this travel. And when you look at our filed fares pre-pandemic to now, there are actually filed fares on average, the nominal prices that we’re charging, they’re actually the same or lower than what they were pre-pandemic. And we’ve seen very nice yield improvement. And the way that we’re getting that is we’re just selling a better mix of fares all along the curve. Selling lower really, really cheap fares, lower really, really high fares and just a lot more really, really good fares kind of in the middle. And so that’s one of the ways in which we’re trying to make sure that we’re — that the product itself is attractive to this kind of high leisure demand environment, and we’re seeing really nice results with that.” (Southwest Airlines, Investor Day, 12/7/2022)

Southwest’s CEO: “ our risk profile is lower” and “our plan is, of course, in ’23 to keep growing profits, keep growing margins, keep growing return on invested capital.”  “Robert E. Jordan, CEO & Director: But if you just wrap it up, I feel like, again, we’re in great shape. We’re very well positioned. We’ve got a lot of momentum, and that momentum is going to carry us here into 2023. Yes, there are a lot of uncertainties, recession, fuel prices, but we are very well positioned. We have a great fuel hedge at roughly 50% right now. We have opportunities to be flexible on the fleet if we need to do that. The capacity that we’re adding is lower risk because it’s almost all restoration of markets that we were in pre-pandemic. So I feel like our — the risk profile, even though we can’t control those externals like the potential of a restoration, those — our risk profile is lower just because of all the things that I went through. Our plan is, of course, in ’23 to keep growing profits, keep growing margins, keep growing return on invested capital. And I’m really pleased that after just a few years post pandemic, the plan that we have for 2023 has us restoring our net income to pre-pandemic levels. I think that’s a huge accomplishment. I think the restoration of the dividend is a huge accomplishment.” (Southwest Airlines, Investor Day, 12/7/2022)

Southwest suggested the company’s priority was keeping costs down, including for technology improvements

Southwest CFO boasted the company maintained a “meaningful cost advantage” operationally compared to their competitors. “Tammy Romo, Executive VP & CFO: Turning to our relative cost position in the industry. I want to point out an encouraging trend. Sustaining a meaningful cost advantage to our peers is key to our business model of low cost and low fares. As you can see from this chart, we have not lost ground in that regard. And in fact, our cost position has improved relative to legacy carriers, other low-cost carriers and even the ultra low-cost carriers.” (Southwest Airlines, Investor Day, 12/7/2022)

Southwest’s CFO stressed their capital spending was primarily on aircraft as opposed to technology and the company was working “ really hard to keep that under control.”“Tammy Romo, Executive VP & CFO: Yes. It’s largely just shift in aircraft. As I mentioned, as we’ve shifted the order book, that’s certainly impacting 2024 as well. Our — if you look at our non-aircraft cap spend, most of that goes into the operations, close to $0.5 billion of that. So we’ll work really hard, obviously, to manage that as we go. And then technology is another big piece of that as well. We spend several hundred millions in technology. So we’ll work really hard to keep that under control as well. So the other really relates to airports, and that’s a couple of hundred million. So we’ll rein all of that in and control that as best we can, as always, but most of it certainly is the aircraft and just the shifting of the deliveries.” (Southwest Airlines, Investor Day, 12/7/2022)