Southwest Airlines turned a profit in the fourth quarter of 2021, its first since the start of the pandemic. The company reported net income of $68 million for the quarter. The quarter's results were driven by "strong leisure demand during the holidays, business travel momentum and incremental revenue from our new co-brand credit card agreement with Chase," said Southwest EVP and CFO Tammy Romo during the company's Thursday fourth-quarter earnings call.
Full-year 2021 net income was $977 million, but excluding special items, the company reported a net loss of $1.3 billion. Quarterly passenger revenue was $4.6 billion versus $5.3 billion for the same period in 2019; full-year passenger revenue was $14 billion compared with $20.8 billion two years ago.
"We made significant progress in 2021, including a profitable fourth quarter, despite the pandemic, and saw strong demand," said incoming Southwest CEO Bob Jordan. He takes the reins on Feb. 1."Eighty-eight percent of 2019 revenues [have been] restored, and managed business demand [was] ahead of our expectations for December."
The new year, however, did not start out well for the airline.
About 5,000 Southwest employees called out during the first three weeks of January because they tested positive for Covid-19—about 2.5 times the company's cases during the delta variant, Jordan said. Combined with winter weather, this caused a spike in flight cancellations and disruption to operations. Since then, operations and staffing have stabilized, he added. "We've seen performance even better than during the holidays," he said. "Yesterday, for example, we were 95 percent on time."
To maintain sufficient staff, Southwest is offering incentive pay programs and is on track to add at least 8,000 employees this year, Jordan said.
Still, as a result of those cancellations and effects from the Covid-19 omicron variant, the company does not expect to be profitable the first quarter of 2022, even though "we expect a profit in March, and expect to be profitable in the remaining quarters and for the full year 2022 based on our current plans," Jordan said.
In the meantime, the company is in the process of adjusting its published flight schedule for March through May, and first-quarter capacity is expected to be down 9 percent compared with the first quarter of 2019, said Southwest EVP and chief commercial officer Andrew Watterson.
Full-year capacity for 2022 is anticipated to be off by about 4 percent versus 2019. "As of March 2022, we are roughly 75 percent restored based on trips, and we continue to expect to restore the vast majority of our route network by the end of 2023," Watterson said.
Southwest's business demand slowed in December, but the company's corporate customers "intend to ramp up travel post-Presidents' Day," Watterson said. "We expect first-quarter managed business revenues to be down 45 percent to 55 percent versus 2019, and improve sequentially from January through March. Our Southwest and [global distribution system] business initiatives are also on track for expected benefits in 2022."
Watterson added that "at the highest level" the company is seeing incremental value by offering corporate accounts multiple channels through which to buy tickets—Swabiz, direct connect and GDSs. "It depends on the travel purpose and on the corporation as to which channel they prefer," he said.
The company didn't provide additional details about its upcoming new fourth fare category, other than to say it would offer features that are in addition to its Wanna Get Away fare "for which we believe customers will happily pay a little bit extra," Watterson said. "We also believe these features will be relevant to business travelers, especially small and medium-sized business travelers."
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