The Omicron effect on bookings and staffing will push Southwest Airlines back into a loss-making first quarter, but the carrier expects to be profitable for the rest of the year and end 2022 with black numbers. The US low-cost reported a $977 million net profit for 2021 on January 27. This month, it has exercised options on another twelve Boeing MAX aircraft. Omicron-hit Southwest buys more MAX aircraft.
Southwest has been hit hard by the effects of Omicron in the first weeks of 2022. It has had to cancel 5.600 flights in January as the staff was unavailable due to sick leave or quarantine. The impact on operating revenues is some $50 million. The airline hopes to solve staffing issues by offering incentive pay to operations employees in February. Winter weather also disrupted flight schedules, while higher inflation caused a headwind for unit costs, which will result in losses in January and February. It also saw cancelations and weaker leisure and business bookings, which will cost $330 million in operating revenues in January and February.
Some 8.000 new staff to be recruited this year
To guarantee adequate staffing, Southwest plans to hire some 8.000 employees, which it hopes to attract and retain with higher hourly pay rates. The airline is revising its capacity plans for the first six months to build in an additional buffer to compensate for any shortfalls in staffing. In Q1, capacity in available seat miles will be down by nine percent compared to 2019 while costs in CASM are up by 20 to 24 percent. This is partly because of the lower capacity, ten to fifteen percent lower load factors, and rising fuel costs at $2.25 to $2.35 per gallon, $0.20 more than anticipated earlier.
Southwest plans to substantially grow its capacity until the end of 2023 when it should have fully restored its network to 2019 levels. Combined with higher production levels, CASM excluding fuel and expenses and special items should be lower than this year. The carrier transitions to a new CEO on February 1, when Bob Jordan takes over from Gerry Kelly, who has served Southwest as CEO for eighteen years. Kelly will stay on as part of the executive team.
Southwest produced a $977 million net profit in 2021 compared to a $3.074 billion loss in 2020, offset by $2.7 billion in payroll support. The operating profit was $1.721 billion versus $-3.816 billion in the previous year. Total revenues grew to $15.8 billion compared to $74.5 billion in 2020, of which $14.1 billion from passengers revenues (+83.5 percent). Cargo contributed just $187 million, up 16.1 percent over the previous year. Over the year, the airline opened services to fourteen airports.
The carrier’s Q4 shows a small $68 million profit, the lowest of all quarters, but nevertheless is an improvement over the $908 million loss in 2020. Excluding special, the profit was $85 million. The operating profit was $195 million (2020: $-1.169 billion) on revenues of $5.051 billion ($2.013). The results include a $75 million impact of massive flight cancelations and refunds in October when the airline found itself short-staffed. Revenues were impacted by a combined $90 million from the Delta and Omicron variants. Operating expenses were also up 52.6 percent to $4.9 billion. Yet, Q4 was the best quarterly revenue performance since the start of the pandemic.
More MAX options converted into firm orders
Omicron-hit Southwest Airlines continues to buy more MAX aircraft from its backlog. During Q4, it took options of seven MAX 7s for delivery in 2023. On January 1, is added another five -8s for delivery this year and seven -7s for delivery in 2023. This brings total orders to 271 MAX 7s and 135 -8s, plus 221 options for both models through 2031. Options on 37 aircraft mature this year.
More than half of the new aircraft will replace the 452 737-700s over the next ten to fifteen years. Last year, Southwest retired eight -700s that were originally scheduled to leave the fleet this year and returned ten -700s to lessors.
Southwest isn’t sure when it can start operations with the MAX 7. Type certification is expected this spring, but the airline said that it needs some seven months to introduce the MAX 7 into its fleet. This makes it likely that the smallest Boeing will enter commercial service only in early 2023.
The airline’s liquidity position remains solid at $15.5 billion on December 31, excluding a $1.0 billion credit facility. Current and non-current debt obligations totaled $10.7 billion. Capital expenditure for 2022 is expected to be around $5.0 billion.
Active as a journalist since 1987, with a background in newspapers, magazines, and a regional news station, Richard has been covering commercial aviation on a freelance basis since late 2016.
In 2022, he has gone full-time freelance. Richard has been contributing to AirInsight since December 2018. He is also writing for Airliner World and Aviation News. From January 2023, he will add a part-time role with Dutch website and magazine Luchtvaartnieuws. Twitter: @rschuur_aero.