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February 24, 2024
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Increased flight cancelations and fewer bookings for January and February will have a negative revenue impact of between $300 and $350 million in Q1 2023 for Southwest Airlines. This is the after-effect of the Christmas period when the US airline suffered a catastrophic meltdown of its operations that hurt the full-year profit. Southwest’s meltdown continues to impact revenues in January and February.

CEO Robert Jordan, again, used the opportunity of the earnings release to deeply apologize to customers for what happened between December 21 and 31, when severe winter weather proofed too much for its crew scheduling systems and Southwest had to cancel 16.700 flights. Yesterday, the Department of Transportation announced an investigation into the airline while its management has come under constant attack from the pilot union SWAPA.

Today, Southwest reported an $800 pre-tax impact on operating revenues from the meltdown, in line with what it said on January 6. Of this, $410 million is from lost revenues and the remainder from reimbursements and other operational expenses related to the issue. Despite this impact, Q4 revenues reached a record-high $6.172 billion compared to $5.051 billion in 2021, of which $5.541 billion was from tickets. With operating expenses of $6.558, this resulted in an operating loss of $-386 million for the quarter and a net loss of $-220 million versus a $68 million profit in 2021.

Full-year 2022 produced $23.814 billion in revenues compared to $15.790 in the previous year, of which $21.4 billion was from passenger tickets and $2.2 billion from other revenues. Expenses totaled $22.8 billion, with fuel at $6.0 billion versus $3.3 billion in 2021. This resulted in an operating profit of $1.017 billion compared to $1.721 billion in twenty-one. The Adjusted net profit excluding special items is $723 million, but the net profit is $539 million versus $977 million.

March bookings are recovering

Winning back the confidence of its customers is paramount to Southwest exiting this self-inflicted crisis. The cancellations and low bookings seen for January and February confirm that the airline has work to do, although it says that during the month, bookings and bonus point redemptions have picked up again and look good for March. It won’t be enough to prevent a loss for Q1. Meanwhile, a new Operations Review Committee thoroughly investigates what needs to be done to make the meltdown a once but never-again event in the airline’s history.

Southwest’s Q1 guidance includes a 20-24 percent increase in revenues year on year, up to ten percent higher capacity (available seat miles), and higher fuel costs per gallon of $3.25 to $3.35 versus $3.00 to $3.10 in its previous guidance. Full-year, capacity should grow by sixteen to seventeen percent, with fuel costs coming down to between $2.90 and $3.00 per gallon. Costs per ASM excluding fuel are expected to decrease by six to eight percent year on year.

Boeing‘s contractual order book for Southwest. The airline is taking fewer deliveries into account for 2023. (Southwest)

Fewer deliveries

Southwest ended the year with 770 aircraft, down 26 after retiring Boeing 737-700s. It expects the fleet to grow to 843 aircraft by the end of 2023, but that’s most uncertain, given the supply chain issues Boeing is having and the MAX 7 still waiting for type certification. Boeing delivered 33 MAX 8s in Q4 and was contractually scheduled to deliver 114 aircraft in 2022, but it fell short with 46 aircraft. These will now be shifted to future years. The airline is taking a conservative line for 2023 and has included only 100 deliveries in its schedule out of the 136 that are in the contracts, including 31 MAX 7s and 105 -8s. Another 27 737-700s will be retired this year.

Without visibility of when the MAX 7 will enter service, Southwest converted four MAX 7s into -8s for delivery in 2023. It exercised options for ten -7s for delivery in 2024, which should see the induction of 51 MAX 7s into the fleet or the highest of all coming years.

Southwest Airlines ended 2022 with $12.3 billion in cash and $8.1 billion in net debt. It reduced debt and lease obligations by $2.9 billion.  

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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.
Richard is contributing to AirInsight since December 2018. He also writes for Airliner World, Aviation News, Piloot & Vliegtuig, and Luchtvaartnieuws Magazine. Twitter: @rschuur_aero.

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