Southwest Airlines

Airlines

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)