Q3 2021 Southwest Airlines Co Earnings Call
Good morning, and welcome to the Southwest Airlines third quarter 2021 conference.
Oh my.
My name is Rocco and I will be moderating today's call.
This call is being recorded and a replay will be available on southwest com in the Investor Relations section.
After today's prepared remarks, there will be an opportunity to ask questions.
So asking a question you May press Star then one on your tongue.
Key pad.
Your question. Please press Star then two.
At this time I'd like to turn the call over to Mr. Ryan Martinez Vice President of Investor Relations. Please go ahead Sir.
Thank you Rocco and thank you all for joining us today.
Just a moment, we will share some brief remarks, and then open it up for Q&A.
On.
Telephone today, we have our chairman of the board and CEO, Gary Kelly Executive Vice President and incoming CEO Bob Jordan.
Executive Vice President and CFO, Tammy Romo Executive Vice President and Chief Commercial Officer, Andrew Watterson, and President and Chief Operating Officer, Mike Van de Ven.
Just a few.
Our call notes here. So first we will make forward looking statements, which are based on our current expectations of future performance and our actual results could differ substantially from those expectations.
And second we had a few special items in our first quarter results, which we excluded from our trends for non-GAAP purposes, and we will reference our non-GAAP results.
Few quick remarks today.
So please see our press release from this morning, and our IR website for more information on both topics.
And just a reminder, that we are hosting our Investor day in New York on December eight.
Hey tuned for more details on that and we will go ahead and get started so Gary over to you.
Brian Thank you very much and.
Good morning, everybody welcome to our third quarter 2021 earnings call.
After five quarters of pandemic weakness, we saw a dramatic recovery in terms of passengers fears and revenues and obviously that was very encouraging.
It would've been even better but for the Delta variant Serge.
Which began to affect us in early August.
Of course, the balance in revenues came with a lot of bumps in the operation, though as our historic staffing models Windows short and caused us to Miss our reliability plan for the quarter.
And that required immediate attention.
An action for future schedules, which we have taken.
So I would be the first to admit that things are messy. It is also.
Very encouraging to see the earnings potential.
Especially considering the business travel as far from recover to 2019 levels.
Capacity is not fully.
We restored with 24 airplanes are still sitting on the ground.
It also illustrates that this virus and its effect on our business can be unpredictable and volatile.
And the burden to manage through all of this falls to our people and we've gone from not enough to do two.
Too much to do in a very short period of time.
And as a perspective of course I think we would all take the latter scenario any day. It has been a huge challenge for our people. So I wanted to thank them they are warriors.
It performed exceptionally well, especially considering the challenging circumstances.
I am very proud of them.
And they remain and always will be my top priority.
And with that I'd like to turn the call over to our incoming CEO, Mr. Bob Jordan, who will give us a quick overview.
Thank you, Gary and Hello, everybody, it's good to be with you again.
Touch on a few items before I turn it over to Tammy.
The transition continues to go really well as part of the leadership changes announced last month, our full senior team now reports to me and they are the finest leaders in the industry and it's an honor to work with them.
Working together on long term priorities and specific plans for 'twenty, two and we will share those in December.
But one of my highest priorities is being.
People and it's energizing to see their hearts and their dedication and witnessed the incredible job that they do every single day, despite the challenging operating environment.
Are my heroes, and it's an honor to stand beside them as we emerge from the pandemic and take advantage of our offer our opportunities.
As Gary said, we had terrific momentum.
At the beginning of the third quarter, especially leisure demand.
I think actually about 2019 levels.
We're on a good trend on the corporate side as well.
Off of a lower bottle.
Researching COVID-19 cases cost the quarter about $300 million in that side the quarter would have been solidly profitable.
Yes Casey.
<unk> have come down and subsided booking trends have recovered nicely on both the leisure and the business fraud and booking trends for the holidays are in line with 2019 as you know from the release the key headwind for the fourth quarter. Aside from just inefficiencies as we continued to ramp up is a significant increase in jet fuel prices.
I do want to talk and touch on the issues. We experienced beginning October the eighth our challenge has started with a widespread ADC ground stop in ground delay program that effectively shut down our Florida operation from that afternoon through the end of the day.
Mike's going to talk more about this but that caused a significant number of crews.
<unk> aircraft to be out of position and then that took several days to recover.
As a result, we inconvenience thousands of customers and we further challenged our stellar employees and I just wanted to apologize to both our customers and our employees. We just did not live up to your expectations before.
Before this we were actually seeing very pause.
Cruise trends in our operational performance and the key to continue improvement is getting staffed and continuing to invest in our operation and we are absolutely laser focused on both of those.
Looking forward our immediate goals are really basic number one bulk up our staffing we've made tremendous progress there remains short of.
What is needed, especially when we dip into staffing reserves and therefore, we have continued to modestly trim, our fourth and first quarter schedules.
Second get back to our historic operational reliability and efficiency.
The ramp up of the business in the pits and starts caused by the Covid waves have made both of those very tough.
As has the lack.
Lack of networked out.
Third restored our customer service advantage, which starts with our people and the unrivaled hospitality that they deliver and again that is tough in the current operating environment and fourth continue to focus on our people and our culture. Our people are our advantage in the last 20 months has been.
Plunging them collectively and individually.
Our culture has sustained us through the pandemic and it will power our advantage as we emerge from the pandemic.
And while we have short term issues to manage.
I'll just tell you I am very positive about our long term opportunities.
I'd also like to talk briefly.
<unk> and highlight our sustainability plans.
Earlier this week, we announced a set of specific 10 year plans in support of our overall goal, becoming carbon neutral by 2050.
It's important to our people our customers and above all our planet. We are good stewards as we grow over the next decade.
<unk> as planned with no incremental carbon emissions as compared to 2019 and carbon emissions per available seat mile falling by at least 20% by 2030 as compared to 2019.
This progress of the curse of a number of initiatives, but namely our commitment to the more fuel efficient Boeing 700.
<unk>, Max seven and 737, Max eight and accelerated retirements of older less fuel efficient aircraft.
Our commitment to 10% sustainable aviation fuel by 2030.
And in the near term a carbon offset program that partners with our customers who are passionate about this.
And our offset program will be the only one that provides both loyalty points and a dollar for dollar match, our ballbot above all I'm just really proud of the work team that has done that.
Work to pull this plan together, so quickly and I'm, especially proud that our plan and our commitments are specific and they are time bound.
To wrap up while we've made considerable progress from a year ago and are pleased with the recent improvement in travel demand trends. It is clear that 2022 will be another transition year and the pandemic recovery.
The restoration of the network is a top priority in 'twenty, two 'twenty three but it will take time.
It will be largely dependent on the pace of recovery of business travel and our ability to staff.
Even with the anticipated cost headwinds in 'twenty, two related to significant inflation and productivity shortfalls. Our primary goals next year are to deliver increased operational reliability.
Generate solid profits and margins.
And it and restore and grow the route network, while reducing our carbon emissions intensity.
And I look forward to sharing a lot more about all this in R. 22 plans at our Investor Day on December the eighth and with that I will turn it over to Tammy.
Thank you, Bob and Hello, everyone I'll provide.
<unk>.
And if you recall.
And <unk>.
Color on our outlook.
On a GAAP basis, we generated a 446 million profit in third quarter.
Our <unk> 73 per diluted share and this was driven by the $763 million.
Of PSP proceeds that offset a sizable portion of salary wages and benefits expenses.
Excluding this temporary PSP benefit and other smaller special items, our net loss was 135.
5 million or <unk> 23 loss per diluted share.
Our third quarter results are clearly not where we need them to be and we are disappointed by the step back in revenue trends as a result of the Delta variant. Even so we are pleased our bottom line came in above.
<unk> expectations and improved sequentially from second quarter.
And we currently have $16 2 billion of cash and short term investments on our balance sheet. This is well in excess of our outstanding debt and it is relatively in line with.
Where we were at the time of July earnings before the impact of the Delta variant began.
Overall travel demand has proven to be more resilient today and the overall impact of this variant has been much less than what we.
We've previously experienced since the pandemic began.
Before I get into the specifics I want to offer my thanks and appreciation to our employees. There what are your spirits have been in full effect since the pandemic began.
And I commend them for continuing to work.
Together to combat this pandemic.
I am also pleased for them that we were able to accrue additional profit sharing and third quarter as a result of our GAAP profit.
Third quarter available seat miles and non fuel unit costs were within our.
Our guidance ranges and I am pleased with our overall cost control throughout the quarter.
Operating revenues were better than guidance and that was primarily due to improving our revenue and booking trends in the second half of September.
Soon after our last investor.
Or update as COVID-19 cases began to decline.
And fuel cost per gallon was slightly better than guidance.
We provided a lot of color for you in our press release regarding revenue and cost trends as well as fleet plans. So.
I will just add a few additional thoughts.
We had four points of notable cost pressure in third quarter and these four points were primarily due to premium pay as well as other ramp up cost.
In terms of premium pay going.
Ford We currently anticipate that we will need less in fourth quarter as we have reduced our flight schedules to provide more staffing cushion.
The reduction in premium pay provides a roughly two point unit cost tailwind from third.
Third to fourth quarter.
Yes.
Our two largest ongoing inflationary cost categories, our salary wages and benefits and airport cost.
These two categories alone are driving three to four points.
<unk> unit cost inflation.
And fourth quarter on a year over two year basis.
First on salary wages and benefits.
<unk> represents roughly three points of the unit cost pressure.
We have higher than normal wage rate inflation, including the recent.
<unk> and the minimum hourly wage.
It is a tight labor market, which is also putting pressure on wages.
In addition, we should have nearly everyone back from extended leave by year end and we are hiring across all work groups to support.
And the current operation.
Second on airport cost.
Year end, we will have 18, new airports in our network.
Our overall properties footprint has increased.
And we are experiencing rate pressure across the board.
The rate increases we are anticipating continued to be much higher than inflation, especially in this environment.
Our fourth quarter trips are expected to be down, 13% compared with fourth quarter, 2019, which under utilizes our space and accessory.
<unk> makes the inflation, we're currently seeing.
I expect better operating leverage from our airport facilities in the future.
As we are able to add depth and frequency back to our network over the next few years.
Also.
Faster or in fourth quarter, we have four to five points of notable cost pressure above and beyond general inflation.
These cost pressures are attributable to hiring our van.
Vaccination incentive pay program and lower productivity than historical norms.
So we.
We expect cost pressures from lower productivity to persist in the near term and subside as we are able to restore the majority of the network.
Even with these inflationary pressures.
Our fourth quarter bottom line outlook is trending better than <unk>.
But her except for higher fuel prices.
Fuel prices, even after factoring in higher hedging gains.
Our 26 26 cents higher in fourth quarter than in third quarter.
Which is roughly a $120 million more and fuel.
Third quarter sequentially.
Sequentially.
That said our strong fuel hedge is currently expected to provide 18th.
Hedging gains here in fourth quarter and underlying revenue trends have picked up.
Which is encouraging even though.
We are expecting a loss for fourth quarter in this high fuel price environment.
Our flight schedules are currently published through April 24th.
We have reduced our fourth quarter capacity to down 8% on a year over year basis.
And we currently.
We expect our first quarter 2022 capacity to be down 6% compared with first quarter 2019.
We currently have 72 firm orders and 42 options next year, and we will continue to evaluate option exercises.
<unk> and decision points arise.
Regardless of our capacity plans next year, we continue to believe that taking the additional 2022 options will yield a positive.
Net present value on aircraft replacement if we.
Don't deploy them in the network.
As far as other commentary on 2022.
We will share more about our fleet and capacity plans and our financial outlook at Investor Day.
And I'm looking forward to seeing you.
Does there.
So with that I will turn it over to Andrew.
Thank you Tammy.
Provide some additional color on our revenue trends and outlook.
Our earnings release for more detail.
To sum up our third quarter revenue performance. It was disappointing to take a step back on the revenue.
You all trends, we experienced from March through July.
The Delta Varian began impacting revenues around the beginning of August.
And we saw slowing in that consistent positive traffic and bookings along with an increase in trip cancellations through about mid September.
In terms of overall revenue loss September bore the brunt of the impact.
And we saw that across all geographies and for both leisure and business travel.
As with prior waves, when we have a step down in demand.
Especially with the slide we saw business demand September.
Hope to talk to manage however, we had better success in terms of maintaining load factors in the low 80% range for the third quarter.
The silver lining is that the overall impact of adult ovarian estimated to be 300 million in Q3, another $100 million in Q4, it was less severe than what we experience from prior COVID-19 ways as you can.
You may recall operating revenue stalled it down.
The negative 60% range from September through February.
So travel demand is much more resilient today at this time last year.
While there is a lingering impact of fourth quarter operating revenues from the Delta variant revenue trends have improved substantially since mid September.
Trip cancellations have decreased and stabilized.
And we've seen an increase in bookings across all geographies for both.
And business.
Operating revenues are currently expected to improve sequentially throughout the fourth quarter.
The booking curve is normalized.
Bookings, thus far for the holidays in November December are healthy and supported by improving leisure demand.
In fact, our overall booking curve.
Both currently trending in line with 2019 levels for the holidays.
Which is encouraging.
In terms of business travel trends are managed business revenues were down the lower 60% range in both July and August year over two year.
But it took a step back in September to down 73%.
However, this trend.
Curve. Its first as we are experiencing steady improvements in business bookings thus far in October.
Based on current trends, we expect managed business revenues to continue improving modestly in November and December.
And down roughly 60% by year end.
Estimate is less optimistic than what we previously shared prior to.
And the Delta variant.
As many corporations pushback there campus openings until after the new year.
But we remain cautiously optimistic about overall business travel improvement throughout year end and we believe there is some pent up business demand and there is a chance that we see it pick up at a faster clip as we get into early 2022.
The empower now live on all three of our planned <unk> platforms Amadeus travel important safer.
We have now removed the friction for business is working with southwest and we have a full array of distribution channels that they can choose from.
Early indications from our GDS launch as we are gaining incremental volume through the GDS channel and seen a great response.
Where southwest fairs through the GDS.
As expected. We're also seeing some channel shift from a direct connect channels to GTS, which is perfectly OK and sets us up for broad appeal to corporations and the channel of their choice.
Turning to our new markets. They continue to develop well and overall performed in line with expectations and third quarter.
Quarter, Hawaii markets were impacted more severely as travel warnings were issued against travel to the islands.
All of these growth markets have shown improvement recently in line with the broad based improvement we are seeing across the rest of the network.
And lastly, our rapid rewards program continues to show progress in third quarter with other revenues up 10%.
On a year or two year basis, we remain convinced about the growth opportunities of rapid rewards and our co brand portfolio, which we recently expanded in terms of our credit card offerings.
And with that I'll turn it over to Mike.
Well, thanks, Andrew and Hello, everyone on the call.
We've had a challenging quarter.
Operationally, it's clear that our industry ecosystem is still fragile.
We're facing headwinds with hotel services, including food and Transportation Airport services like wheelchairs and concessions.
<unk> requirements for customers and our people.
Still have a very challenging supply chain and hiring environment.
And all of those things are impacting travel experience for our customers and for our employees.
Our third quarter operational results reflect that environment.
And we had a number of employees, making significant sacrifices to help us navigate through it and I am extremely grateful to them for their support.
To engage in a very difficult arena.
Special Warriors.
We finished the quarter with a 71, 7% on time performance and while that was six and the industry. Those delays were generally less than 45 minutes and our on time performance at 60 minutes was <unk>, 94%.
<unk>, which was fourth in the industry.
We did have our best third quarter bag handling performance in our history with of course, the exception of last year, when our bag volumes were slightly less than half of this year and we continue to lead the industry with the lowest customer complaint ratio to the dot's, so while I'm not satisfied.
<unk> with our overall results and we can and we will do better.
People worked very very hard to take care of our customers.
As we move forward, we are focused on a couple of targeted actions.
First we know that our on time performance has been impacted all summer by a combination.
Nation of high load factors, and especially going into and out of our largest cities and a reduction in frequencies from our typical network in fact.
Our largest cities experienced full airplanes coming in and out nearly every day and they had much more extensive connecting activities, including bag volumes than what we.
We have seen pre COVID-19.
And in those activities took more time to complete and we had scheduled for our turns.
And given the heavy load factors, we tended to hold the slide four connections given the reduction in frequencies and our inability to re accommodate customers and that of course put pressure on our on time performance.
And that averaged roughly 66%.
From July through mid August.
So as the customer volumes declined mid August through September and those activities lessened our on time performance improved to 80% and that was a welcome improvement, but again it was below our historical performance in that period.
So in the near term, we have focused hiring efforts to increase staffing at the airports to give us more resources to handle those activities when our load factors increase over the holiday periods.
And we're also better using our staffing tools to more accurately match, our scheduled shifts with those activities. So.
I expect both of those additional resources and more focus staffing execution will boost our on time performance going forward and then for future schedules. We are looking at scheduling opportunities to move ground times around the places where it's most needed to keep our flat lines on time as long as this connection activity is expected.
Yeah.
And a second in a separate.
But still related issue from on time performance is balancing our schedule with our crew resources.
All of our employees should expect to be able to bid their shift they show up to work and it would be the same as what they bid in and then they get to go home as planned.
And I've mentioned.
<unk> for that those staffing plans were based on various models that have assumptions for things like vacation and sick leave open time, a shift pickup rate and the time it takes to fill open positions.
And while we had adjusted those assumptions going into the summer to provide to provide more staffing cushion they just weren't enough.
But the reality of the environment that we're operating through and that was particularly impactful to our flight crews are sick trends were much higher than expected and our open kind of pickup rates were also impacted.
Those were more pronounced on weekends, and we were routinely exhausting our reserves to cover those impacted fly ash.
<unk> demand and that's what causes the crew reroute and the unplanned overtime in the unscheduled overnight and all of that impacts our people. So it's a spiral that we just have to break into.
And to do that we've adjusted our fourth quarter flight schedules downward as pre leased previously announced.
And we have we have a new hire flight attend.
Along with pilots returning from extended leaves that are coming back online in the fourth quarter and those actions will boost our crude reserves to 20% for our pilots.
And around 26% for our flight attendants.
We will also expect our sick trends, which include COVID-19 impacts to begin to decline as this delta.
A very it begins to wait Blaine.
So in summary, we continue to add staffing and we've made schedule adjustments to both improve our on time performance and add more staffing cushioned to navigate through our current environment.
And our environment and our staffing and scheduling balanced begin to stabilize we will be in a good position to begin.
Begin restoring our network frequencies during 2022.
So in closing we've had our share of operational headwinds this year.
I know the environment is full of stressors and distractions and I just want to express my continued thanks to all of those employees that have made significant sacrifices to take care of our customers.
And to support their cohort.
They have tremendous pride in our company and the company is tremendously proud of them.
With that Ron I'll turn it back to you. Thank you Mike I believe we have analysts queued up and just a reminder to please keep your questions to one and a follow up if needed. So Rocco. Please go ahead and begin our.
Q&A.
Yes, Sir we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
We are using a speakerphone please pick up your handset before pressing the keys.
So withdraw your question. Please press Star then two today.
Today's first question comes from Jamie Baker Jpmorgan.
Our analysts. Please go ahead go ahead.
Hey, good afternoon, everybody, so Gary notwithstanding the PSP related prohibition could you opine on the milestones you hope to achieve for dividends and buybacks reemerge as part of the southwest story.
Okay.
Well I think Jamie its pretty much a stock answer obviously the.
It will we will.
We want to make sure that the earnings supports that.
We want to make sure that the balance sheet.
Supports that and then we'll want.
Set against our capital plans.
So I think.
The litmus test that we've used for decades, we would continue to use.
In the old days, when we were so high growth, we had a fairly modest dividend and used share repurchases sparingly because.
Our balance sheet, we're investing in the company and in growth I think everybody in this room is very hopeful that.
That's what we've got in front of us.
I think we're.
Pushed a little too hard they're in the third quarter with capacity, but the.
The encouraging thing as demand is there.
<unk> got a line of sight to airplanes. So what I mentioned in the second quarter, We've got airport capacity.
And right now our constraint is just making sure that we have the people resources to balance all of that so that's going to be a priority repairing the balance sheet at least to a degree Tammy is nodding her head here.
There is certainly.
And objective for us and.
You got two levers one is paying down debt and the other one is generating earnings so both of those work in tandem.
But it will I think.
You know our.
Long history of returning.
Or having returns to shareholders.
It has not changed it will it will just have to obviously feather in with this.
Very different environment than we're finding ourselves in and an interesting growth opportunity over the next five years. So.
Bob I don't know if theyre Tammy.
If there's anything you'd like to add.
Yes, I think you've covered yet.
Okay. That's very helpful. And then a follow up on that and this one is going to.
Show, My age and and hopefully not cause anybody there to laugh, but I'm I'm thinking back to the infamous 10 minute turn.
What prevents that.
Today.
I mean, obviously aircrafts sides as an issue demographics have changed I'm guessing people check more bags I don't know if theres anything in the labor contract that prohibits flight attendant contribution that sort of thing longer stage means more fuel to pump.
I'm just wondering what else.
Has happened that prevents you from having a 10 minute turn and obviously I'm not suggesting you ever get back there, but I've got to imagine you can do better than what you. Currently are so so what are some of the other constraints that I haven't thought through.
Well I'll give you a historic answer and then Mike.
Mike is going.
To make you and I, both look old here, but.
Mike and his team in technology, just rolled out some technology. This week in fact that will help address what youre, describing but the 10 minute turn.
Jamie My first flight on southwest was $19 72, and there were two other passengers on the flight it does.
Does not take long to turn on an airplane and 10 minutes when theres three customers.
I ask Lamar Muse.
I first became CEO about who was the genius.
The design the open seating concept and a very colorful he told me that.
You don't need to assign seats when the airplane.
<unk> are empty.
So you know the passengers are the gating factor with the turn it's rarely the bags.
With a more connecting bags you have obviously that calculus can change but I.
I'll tell you one other funny old story and these all predate me, although I was.
Airplane in the 19 seventies and experienced this.
We actually would push the airplane before everybody was in their seat much less buckled in with a seat belt. So.
All kind of quaint stories, now, but I think you're probably more interested in what can we can do realistically. So Mike do you want to talk about those targets you have.
Customer yeah, all of those things are true.
Gary was was mentioning but.
We do focus on the turn and we break it down into different components.
And you start just with a different components, we offloaded and then cleaned and the loading backup and there are several things that make the.
So longer today than they were back in the days when you remember the 10 minute turn and so one of the big items right now is the Ada in wheelchairs, and making sure that we have a wheelchair accommodations for people.
That probably adds three or four or five minutes, just trying to get people loaded on the.
Turning.
And a lot of times they are magically.
Healed getting on.
From a slide in there they don't need them getting off but when they do need them getting off it's actually add several minutes again.
So I think just the wheelchair process is probably adding five to 10 minutes of that.
That in turn.
Second thing that you have is just more people are bringing bags on the airplane.
And we've got the Sky.
The new overhead bins on the new airplanes is trying to get all of those things stored.
That takes a little bit longer than normal.
And those are really the two primary things.
The third thing is back when I first started at southwest Airlines, our ops agents were at the door of the airplane.
And so any coordination they had to do with the cockpit was right there at the door of the airplane today, depending on you probably walk down some of the jet bridges, they're long walks and R. R.
It sometimes have to make that trip two or three times and Thats one of the things with Gary was talking about we just rolled out some technology that will allow us to have a mobile platform and get our ops agents back closer to the door of the airplanes. So that will help also.
Okay, very interesting and enlightening. Thank you for.
Akshay letting me answer that question take care everybody.
And our next question today comes from Savi <unk> with Raymond James. Please go ahead.
Hey, good afternoon, everyone.
Okay.
In the past you've talked about just given the number of new airport you've added.
You can increase.
Your breath basically and in market depth and that most of the capacity growth going forward will be to kind of build back that that depth and I think Tom in your comments about getting back to that to bring back productivity. I was just kind of curious what level of capacity would you get back to a level, where you can kind of drive better productivity.
You across the network.
And maybe better Recoverability.
Andrew I'll start off and then I'll, let you chime in with any thoughts you have.
Yes, just to just to give you.
Idea of at least the how we've deployed our aircraft here.
Activity really.
As you.
We've talked about we added 18, new cities and of course, we've added a Hawaii. So when you look at all of those together when you have about 92 airplanes deployed in either new cities.
Our art in Hawaii.
Currently so.
Which means that 92 aircraft last that.
We have in <unk>.
Our our network kind of pre pandemic, if you will.
No.
Yeah.
We need to go back and backfill.
Okay.
That number of aircraft to at least get us back to kind of where we were pre pre pandemic.
So and then as we look ahead to 2022.
We're making some adjustments to our capacity here in the near term as we've taken you through.
So will.
We will want to.
Cerro Verde back capacity and quickly as we can but obviously demands are going to be.
Our pacing factor and of course, our staffing levels as we covered with you. So those are just a couple of high level thoughts, but Andrew anything any more details you'd like to add to that.
Our thoughts and something to build on that if you kind of look at the aircraft numbers at Hermes talking about an implied that's going to take us over a year to fully restore our network. So this is a longer term play.
We talked about restoration overall like that but thats a subset of that very large subset, which is the depth, we talk about and so the.
And markets are primarily business oriented market. So we expect to with the pace of business travel return bring in those different markets.
Our next year those same depth markets are the ones that also facilitate recovery the day to day recovery that Mike was talking about and our March through summer schedules as we anticipate.
<unk> seen a step change in that level of density and.
<unk>.
Network, we won't be fully restored again for over a year for the part which really appeal to business travelers and helps micro a recovery, we expect to see substantial progress from March through the end of summer.
Sure.
That's super.
Very helpful. Thank you and if I may quickly follow up on some of the GDS comments I was just wondering if you could talk a little bit more about what.
Are you seeing in terms of the channel shifts that you mentioned and how that lines up versus expectations.
So we're seeing incremental benefit clearly from the GDS It happened just.
With sabre.
A third of the three just before the Delta variant so given the kind of turmoil or the Delta variant, it's really hard to heavy conclusive with the trends we can see clearly, though it is incremental the shift we had planned for from our direct channels.
Two of these indirect channels, however to give you a little bit of context of our largest corporations actually.
Use all three so they're using self with the swap is they are using a direct connect and now they are using etfs and they use it for different populations to travel purposes. So the amount that's going through each of those three channels really depends on the population, whose traveler that company right now so it's hard to make definitive statements about what the overall shift will be more kind of.
<unk> done and dusted Crs business traveler finish it out to ramp up but right now we see it's clearly incremental and we certainly planned in our business case for a substantial amount shift.
Makes sense all right. Thank you.
And our next question today comes from Brandon <unk> with Barclays.
Please go ahead.
Hey, good afternoon, everyone and thanks for taking my question. So I don't know if this is for Bob Tammy, but how do we think about ongoing costs here in I guess in regards to recovering the network getting back into some of those shorter haul frequencies like you guys talked about.
But just longer term.
And I think Tammy you were talking about projects back in like 2018 2019 on the technology side that you guys needed to invest and so are we back to an environment, where maybe benchmarking to prior cost structures is not the right way to think about it or can we get back to those unit costs.
I can start Bob and then I'll come back in China.
Any thoughts you have but yeah, just kind of picking up.
From where we are here.
In the third quarter.
Our CASM X was up about three and a 335% and that was on a year over year to basis in so.
China.
Clearly, we've got some ramp up cost pressures here at currently and.
As I said earlier that was about four points and that related to premium pay and ramp up costs.
So if you adjust for that impact our third quarter CASM ex would have been slightly.
So our third quarter 2019 are on capacity that's down about 2%.
So.
You know, we've we've taken some cost cutting measures here that we've implemented during the pandemic and that's namely the voluntary retirement program and our extended leave programs.
And while those have substantial savings this year the benefit is certainly temporary.
As all of those employees.
Where will.
We'll be back here by year end in and of course as you know.
<unk>.
Sure that we're hiring a substantial number of employees said, we've got a goal to hire 5000, new employees a year in.
To replace many of those who left so the point being is.
The cost reductions that we had.
During the pandemic those will come back as capacity comes back.
So so so that puts us at a much different point in the ramp up you know then than most of our competitors, who still have capacity down much more.
So we've we've.
We've talked about our 18 new cities in.
Sigh investment.
So we.
We've allocated capacity here and that has come from pulling down our short and medium haul flying.
No.
So many of our costs here are back online and I, just want to point out again, where SAA.
In Hawaii back up and our network is very different from what it was pre pandemic.
So that's kind of where we are today and then we've also experienced several years of wage rate inflation from where we were in 2019 and.
Stafford earlier, we've got inflation in airports and pretty much across the board.
So when you.
Add to that the lower productivity, we're experiencing from some of the.
Behavior changes that we've talked about in this really tough operating environment.
Point being in the <unk>.
As I kind of just different here, so kind of getting to your question as we move forward.
The main thing we want to focus on here is our is our regaining our historical.
Productivity edge.
And clearly the biggest thing is gain operating leverage three restoring the majority.
<unk> are pre pandemic network and so.
I know that was kind of a long winded answer there, but there just aren't a lot of moving parts here.
So we're going to be focused on improving our productivity as we move forward.
But I think the biggest question Mark I.
Right now it's just you know what it's going to be the extent of the inflationary.
The pressures that we're that we're feeling.
Yes.
I'll give you the 50000 foot.
The way I'm thinking about it is we've got.
Nothing is normal right now.
There's just all kinds of fits and starts.
I have been in the business and different behaviors and so you've got you've got.
Extra cost and inefficiency that comes through the network moving around we've had scheduled we cut them back you've had.
Inefficiencies that have come through just hiring we're staffing it takes a while to get people through training.
<unk> still behind it takes a while for those folks become.
So you've got cost inefficiencies there we had changes in behavior I think those are largely COVID-19 driven so we have obviously direct COVID-19 poles, where people, they're literally pulled off care cannot.
Okay can't work because of the Covid contact we have exit.
We are excess sick leave as compared to normal we have more folks on leaves as compared to normal that's likely.
Due to connected to bringing folks back from those extended leaves earlier than they had planned so there's all kinds of stuff.
That is in there and it's hard to tease apart exactly what the value is of each so I'm.
Im with Tami job one is to stabilize all of that and then work to get ourselves back to pre pandemic levels of.
Productivity and efficiency and.
And then from then work on cost pass that but job one is to get back to the broker.
The ring all of this.
But the productivity that we had prior to COVID-19.
If I could just.
You think about airplanes airports and people.
I think we are willing to sign on airports.
Pretty much in our control.
Airports, I think or close.
To that end.
Our app.
I agree with Bob attainment goal will be to get back to the people productivity that we had prepaid pandemic.
And that we're just going to have to work our way through that but that will absolutely be the goal.
I mean is it incremental hiring that you guys need to get.
Going forward.
Absolute that's their productivity levels.
I think it's yes and no.
So right now the way to think about it is it takes more people per departure.
Before.
Uh huh.
The analogy would be.
Forward to get the United States participation rate.
Our participation rate.
Actually producing flights is less today than historically, Bob tick through it it's excess.
More people and leave et cetera.
As we get the pandemic behind.
I for one think that that will revert back to the mean.
Will will trend and be and achieve prior productivity rates.
The plus on on what you're asking in terms of hiring is we've got 24 airplanes sitting on the ground doing nothing.
For us we've got airplanes that we want to add to the fleet.
Next year, so absolutely hiring will address that and that will be a prototype activity contributor on the airport and the airplane side.
Thank you.
And our next.
And today comes from Duane <unk> with Evercore ISI. Please go ahead.
Great. Thanks, Thanks for the time.
So.
I'm curious if you could share kind of what you've learned from a network perspective that that strain. The operation every carrier has been.
Importing.
Quotient work to this demand environment, I think you linked length and stage length.
In past media was you talked about how much of your capacity touches Florida.
What are the lessons learned and if we kind of dig through your future plans what are the types of markets you've moved away from in an effort to improve the.
The operation.
But.
I think the first thing as we moved into summer we color forward schedules based on what we're seeing.
Staffing that Tom Gary and Bob referenced and we just took more people per trip and so we immediately lower trips from October.
They're now through the end of the year. So just the level of capacity versus staffing was the initial issue. The second is the day to day recovery is more difficult when you have fewer offices free accommodation with the three accommodating the customer.
Crew or even the airplane to get it where it needs to be that.
At night, and so bringing back that density we've identified.
The number one thing that will help our day to day operations recover more easily when there are things that are exogenous shocks from weather or something else that allows us to recover and so getting that back is going to be what we're going to be using all of our aircraft.
Craft for over at least the next year and kind of that our network that was pre existing 2019 will come to look a lot like what we have at the end of next summer at the end of next year that core part that operated very well and produced good results will start to look a whole lot simpler it takes a while to get there, but thats what.
It will be using the aircraft for versus say growth of breath options, which will be used during the pandemic and Duane Andrew chime in on this but I don't think that.
It's so much.
Our stage length long haul versus short haul as it is more of a tilt towards leisure.
<unk> markets.
So that sort of lends itself to.
A thinner frequencies maybe longer distances, obviously, Hawaii is a huge.
Impact on averages here.
We beefed up that service, but a lot of our traditional business market sort of the higher frequency short.
All in we found those out so.
I think it's more of the Andrew the leisure business that we've adjusted now.
And we want to go back to restoring which will be more short haul more business oriented, which beefs up the backbone and.
And helps with the Recoverability, So I don't know if theres a lot.
<unk> that we've had I think actually things are playing out the way we thought.
But we're all anxious now that demand has recovered that's encouraging thing here is now we are in a position where we can sort of pursue our strategy is playing out like we hoped.
And we wanted to keep the new.
We added we just want to get back to restoring the traditional southwest networks, which we think is going to drive a.
Really nice profit they'll they'll develop you know very rapidly.
Correct that that versus restoration should be very low risk and.
And the leisure portion is absolutely correct in fact, if you dig into the <unk>.
Mark talked about with connections.
So much the nominal connections of cutting customers, which are actually flat to slightly down it's connecting bags because the bags work because we have more leisure customers and leisure customers checked bags at a higher rate of the business customers and so as we get back to a better business leisure mix we should.
See the proportion of bags and connected bags coming down on the network, which will also be a tailwind operationally.
I actually think the learning and wasn't on the network side, I mean, our network folks and our operational analytics folks are on top of all of this stuff. They understand what we're doing and then obviously they understand what we have done to ourselves if we.
Back off frequencies in depth, obviously, it's going to be tougher to recover our customers and move our crews around so we knew all that I think that I think the two learnings are.
Again, we've talked about this a lot.
We dependent on some hiring to get staff to support that network and it was just tough to get.
There so by the time, we were ready to fly for example, this summer we just Werent staff to the point that we thought we would be.
The second learning really was how important the margin is whether it's crews around operations, but I think especially crews.
And as we had lower margin things like reserves and all.
All of that.
The operation is just.
It deteriorates faster as you eat up that margin.
You've got especially on the crew side, so to meet them either really the learning is on just how important it is as Mike talked about is to have that margin.
And the crew network, especially as.
As you operate.
And then again in a better network with lower frequencies as you as you would have to use a part of that margin to move crews around and those kinds of things. It's just not there. So to me, though if there were learnings are really more there the importance of staffing than they were on the network design.
I'll just pile on with very end here.
The biggest learning that I've had is and I talked about earlier is this industry ecosystem and it's dependent on having people at work and it doesn't matter where it is it can be hotels that can be van drivers it could be people.
Working at the airports, but the people.
If you have enough people you can have an up tempo business and that's what our business our whole industries business wasn't as fast as tempo as everybody had planned it to be and Thats, where I think everybody got into issues with their with their on time performance and their staffing and their crews and so.
Everything that everybody else said I totally agree with it to meet people in the industry that slowed the temple down we want to be an up tempo operation.
And to get that we need more people who need more frequencies.
Super Super helpful and maybe just to segue on that last point.
On labor.
Availability your ability to hire grant ground Airport staff.
Or whatever it is you need to support that operation.
I assume as you raise rates that that.
Creates demand and more people show up but I guess normalizing for that are you seeing any relief.
Relief on that front are you seeing more people apply for open positions are you seeing any clouds party on that front. Thank you.
Yes, I think on the hiring front.
It just look across the whole United States of the World is that hiring is just more difficult because of the labor pool is smaller with folks have not come back into the labor.
<unk>, So that's just where we all start.
Southwest is a terrific company a terrific employer terrific benefits and so we do not struggle to get applicants.
The applicant rates are a little below normal which is to be expected given the number of open jobs, but no. We've not struggled to get applicants I think the issues.
It's probably been a couple of things one we spent 18 months.
Or a little bit less hiring no one I mean basically no. One in fact, we kind of dismantle the hiring machine and folks that work there and put them into other parts of the business. So once you decided to hire which for US was probably April you would have to you.
<unk>.
And then you have to rebuild the team that actually works on all of that.
So by the time, we really got the moving I E. It's July or August of this year before you can really have new folks back into a back to back into serving working and serving the airline.
You also have to rebuild your training.
But I think overall, it's again, it's a tough hiring environment, but we are not struggling to get people it is more competitive than ever.
And it's especially competitive in our more entry level jobs for example ramp.
On the ramp in airports and its more competitive in certain parts of the country like a.
Denver for example.
But no we're not struggling to find people, we just need we need a lot.
And it's a competitive market and it takes a while to get them from the hiring for the point of hiring to the point of actually being at work.
We are using all kinds of new techniques, we had not used.
Used in the past instant instant interviews instant offers.
Contingent offers where somebody goes into training ahead of their required things like drug testing and background checking those kinds of thing. So no I think I'm optimistic we just have a lot to do trying to hire over.
Over five.
This fall than 8000 next year.
I do think.
In fairness to your question there is one thing that I learned here.
But I would like to share and that is and I don't and for everybody on the phone I.
I don't know what your lives have been like over the past 20 months, but I bet they've been impacted.
Okay.
And many of you may be working remotely.
So because you've done that.
Your habits have changed and.
We can all speculate on what what things are different for you now.
Our people are the same way and especially the people that.
Went on leave and at our peak Bob didn't we have 15000 people that went out on leave so an assumption that I made was that we're gonna column and say, okay. It's time to come back and they're going to show up and everything it will be just like it was and it's just not.
And so I do think I personally underestimated that coming into this year just repeat.
Pete what I said earlier for a long time, we had nothing to do and then all of a sudden wham.
We had to pick up the pace like Mike was describing and it's just been messy.
So I think all that will smooth out both with our existing employees that were trying to get back in.
And settle back and.
And new hires as well, but.
It's not going to be here in the fourth quarter, it's going to take a while and one last question.
That will be done as I've gotten a lot which is the requirement have new hires vaccinated is that hurting you as eliminating your applicant pool.
And the short answer is no we had I.
50000 people in the hiring our applicant process whenever we decided to.
To shift and require that our new hires be.
Vaccinated, and we've seen less than 2% drop out of the process.
Because of that in other words.
The eight plus percent or are there already vaccinated or are going to get vaccinated in order to be able to come to work for southwest Airlines, which number. One tells you it's not an impediment and number two tells you people want to work for southwest Airlines, which is terrific.
Thank you very much.
And our next question today comes.
Sheila.
<unk> Jefferies. Please go ahead.
Good afternoon guys.
Thanks, so much.
Hunter you talked about some of the inflationary pressures on it.
Labor and the team talked about that extensively so I wanted to switch gears, maybe talking about higher steel prices and how you guys are thinking about that as it affects.
Sure.
Yes, so yes.
As you know fuel cost has historically been a third of our cost structure. So it's certainly an input.
As we.
As we think about the pace of our.
Sector.
Our our expansion here. So we just kind of goes into.
And the mix with all the other costs, but the good news is.
We have a really great hedge in place to at least help blunt.
The market prices that we're seeing here.
And are the fair market value of our hedge book is over 900 million years. So we've got a lot of really great protection.
Place.
Should we continue to see.
Fuel prices at these levels are higher.
That said.
Are you still going to see some inflation and our fuel cost at.
At higher fuel level, so that will just.
Obviously be taken into consideration along with all of the rest of our cost structure and you know as we as we plan our future capacity plans.
Great. Thank you so much.
And we have time for one more question today, and we will take our last question from Helane Becker of Cowen. Please go ahead.
Oh, thanks, very much operator, hi, everybody and thanks for the time.
Two.
Two questions one Gary is this your last earnings call.
Are you going to be back for next year.
And I guess, it will be back for Investor day, but.
Good morning.
Yeah, I'll be there for our Investor day and.
Transition date is.
February one so I'm going to come back and haunt you one more time.
Okay.
Alright, well Thats fair enough I'll see you I guess I'll see you in December.
And then my other question is really with respect to technology you guys spent a lot of money on technology over the last few years kind of ramping up getting ready for more business travel.
Travel and getting ready for for more GDS exposure now I'm wondering like what's next what's next on that front and if you could just talk a little bit about that.
We will lane.
Every company I think at this point is that some part of them.
They were a technology company it is central to everything that we do obviously central to everything that we do itself was airlines because we are so dependent.
I would tell you we have all kinds of priorities.
And some of those are like we have every year and ongoing they are.
Our revenue initiatives that we'll be sharing with you in.
In December.
Are those required technology, but I would add Mike can comment on this to me.
If I had a headline it's our investment and operational tools.
Our people are terrific.
We have good tools.
But at our size and scale and complexity I think there is a need to continue to invest heavily in the operation and in particularly heavily in the operational tools that we provide to our employees they are terrific.
But.
Could use tools that better help manage their.
Their day manage the complexity and so to me if I had to rank order.
The number one objective is our continued investment in our what I, what Mike and I are just calling modernizing our operational tools.
Do you want to add onto that Helane I think Bob covered at most.
Mostly.
But.
When you think about modernizing the operation, we just we rolled out a significant enhancement to our.
Maintenance systems this year and we've got.
One last piece to get our.
Our Max aircraft in our 800 rolled into that here.
In November so that's a big enhancement a big modernization if you will.
In our maintenance systems, and our maintenance systems that it was replacing is close to 30 years old.
So I think that you can.
Can categorize the different kinds of opportunities we have in those areas. We've got things that we want to do in flight planning we've.
<unk>, we want to do on our Crewing systems, we have things that we want to do as we are coordinating and executing our turns on the ground.
We have investments we want to make in our decision support and optimization technology. So we've got a we've got.
A good array of things that we wanted to do and we can talk more about those.
Got single bit more detail in our Investor day.
And that's very helpful. Thanks, everybody.
Thank you your line, okay, well that puts us at a time here for the analyst portion of our call today I appreciate everyone joining us.
Ladies and gentlemen, we will now begin our media portion of today's call.
So first introduce MS. Linda Rutherford Executive Vice President of people and communications.
Thank you Rocco and welcome to everyone members of the media to our call today.
We can go ahead and get started with the Q&A portion Rocco people just give them some.
Questions on how to queue up for a question.
Absolutely to ask a question you May Press Star then one on your Touchtone phone.
We're using a speaker phone we ask that you. Please pickup your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Mr.
Yes.
And our first question today comes from Murray slogan Stein with Bloomberg News. Please go ahead.
Thank you Gary earlier today in an interview you were talking about how you don't.
Don't really support forcing.
The employees to get vaccinations.
Corporate employer and you said you were doing the bare minimum to comply with the federal mandate and my question is whether there is not some concern within southwest that by saying things like that and proceeding in that way that youre going to lose travelers to people who.
For an airline that can say 99, 7% of their people have been vaccinated against Corona virus.
Well Mary I think it's two different things, we have an executive order that's mandating the vaccines and we're doing everything we can to comply with that.
Number one we're encouraging everybody.
Perfect Unaided and if you can't do that then they're option is to seek an accommodation so I don't see them as inconsistent.
It just simply.
Yes.
I for one am empathetic with those who don't want to be vaccinated.
And.
It's it's.
To give out.
I don't see that it is our.
Our role.
Two.
Two.
Enforce a mandate coming from US. This is the U S government's president of United States, and I respect that and we're doing everything that we can in good faith to implement it.
No.
I don't I don't I don't believe that we're going to be any different spot than any other airline in terms of our.
Our health and safety.
And what would it not help consumers, though if you were to disclose the percentage of your employees who are already vaccinated.
So well you know what I mean at the right point the deadline.
To comply with the federal.
The executive order is November 24th.
And right now we've got a majority of our employees have reported.
Of those who have reported the super majority of them had been vacs.
Well, we needed, but we still have a large percentage who have not reported.
Would just be pure speculation on our part how many of those alright.
Already vaccinated, we just haven't heard from them yet for whatever reason so.
Just be patient with us when we get to November 24th we will we will obviously be sharing.
<unk> information.
Thank you very much.
Yeah.
And our next question today comes from Alison Sider with Wall Street Journal. Please go ahead.
Hi, Thanks, so much.
You've talked a lot over the last couple of months about.
That is skewing some of the deaths out of your network and adding all the breadth with the new cities and I guess, just curious in retrospect given all the complications that it has caused if you still think that that was the right strategy. If you could go back in time do you still think it made sense.
Going to pay off in the long run or.
No.
Take locations in the last couple of months maybe question at all.
Well I disagree with your assertion that it's created complications.
Our primary challenge is we just don't have enough people resources to match up with the effort required to.
Copper eight flights and serve our customers well.
We do get into a situation, where we're trying to manage irregular operations.
We've got a great strategy with backbone with depth.
That's clearly on our work plan for.
'twenty two.
But.
Allison, there's just there's no way to manage through a pandemic other than when when the demand is cut by 98% it would be foolish to fly the same schedule.
So.
That schedule has served us well and something that we're very enthused about going forward.
Now, we very quickly and happily shifted to a need to go back and restore some depth in the network and that'll be very very welcome so but in any event.
Kinds of challenges.
<unk> that we've had this summer we'd have them, whether we had the old schedule or whether we have this schedule.
The root cause is we just need more people resources period.
The data proves that out if you look at our performance from August and then September beyond when we do see amount offline.
Our intent performance substantially increased.
September all the way up to just before October eight.
Add in the fact that Theres, one runway in Dallas, which is a big part of it is more than we expected our performance during that period of time with reduced activity, but still this broad network.
It was satisfactory.
Now we want more depth because it helps our.
Customers it helps recovery, all things being equal, but it's a tailwind we're seeking not necessarily a root cause.
Yeah, and it's not as if we have dismantled.
The network that was built over 50 years that that's also.
Incorrect, it's a pretty big.
Big change from where we were.
But certainly the bones are still there.
Great.
Thank you.
Thank you.
And our next question today comes from Leslie Josephs CNBC. Please go ahead.
Hi, good morning, everyone or good afternoon, everyone.
What was the reason.
For pulling back on that plan to you Anthony Lee.
People that have exemption, but haven't yet been approved or were still being reviewed and then the second question. Just is there any concern about your network next year, particularly in the summer with international coming back from your competitors are really ramping up.
Nations. So just curious how you're thinking about competition from other places to go.
Once you guys take the letter I'll I'll talk about the.
The vaccines at and if you don't mind I'm, just going to give you two minutes on or what or what our objectives are here number one.
We.
We are in the.
Somewhat ties in with the <unk> question.
We want this pandemic to end.
So we certainly want to do everything that we can too.
To encourage people to get vaccinated I for one believe that that is in the past.
And that's the path that we're promoting.
We have tried to encourage people to get vaccinated and further with incentives as opposed to using a more punitive approach.
As an example, I charging employees if they are unvaccinated. So we're not we're not doing the ladder, we're doing the former which is to try to encourage so I think thats important.
<unk> as a background here so.
Second our objective is to take care of our people in every way that we can.
In terms of their safety in terms of their health in terms of their job security.
I think everyone should get vaccinated however.
I respect other views and especially.
We had to consider how much information there is out there.
And pretty much any view you want to find support for U can and that has to obviously be confusing for people.
No.
I don't feel that it's up to me.
Force people to get vaccinated, So I think that's important.
<unk>.
And in answering your question that you know that those are two of our objectives.
As a practical matter.
You know, we've got important trips with our for our customers coming up in this quarter in other words the holidays.
Today's the last thing I want is our people distracted with something like this vaccine mandate.
The last thing I want is for people to.
Fear that they won't be able to work or have a job and so we simply put that to rest and it ties in.
That objective I'm sure.
You you you would readily recognize but it fourthly.
Which ties into that.
We are a government contractor we have been for decades. It is important to us and a variety of ways number one we serve the military with charters and number two.
Two were part of the Civil Reserve Air Fleet.
Which as an example, just help helped with the Afghan refugees.
Those are important to us in addition to that they're our largest customer we carry the mail we carry a number of government employees as passengers under this contract.
<unk>, so we're going to do everything we can to maintain that contract.
And we didn't ask for the mandate, but we got it.
So and and the order is from the White House.
So all of the agents.
Agencies that we actually contract with they're getting direction.
Which is very general from the White house and as that direction evolves.
We evolve with it and I think what.
Again, just to tie in Mary's question, all I was trying to communicate to.
Everyone everyone is that.
We are not on a campaign here to force everybody to get men to get vaccinated. What we are trying to do is whatever we need to do to comply with the executive order. So we can maintain our government contractor status.
And if that means that.
That we can do that and not force people off the job in December.
That's why we.
We.
This is an evolving process working with the government in terms of what they expect.
And very clearly.
We want our employees to know that nobody is going to.
Lose their job on December the night, if we're not perfectly in compliance it is a work in progress.
And we're going to continue working in good faith to meet the requirements of the executive order.
But I've already said.
I'm sure you've heard that we're not going to fire.
Fire anybody who doesn't get vaccinated.
How we work through the.
The people that don't get vaccinated, our adult seeking accommodation, we're going to have to figure out and we're working with the government on that but we are not going to fire anybody it makes no sense.
That we would not respect.
That and find some way to work with our people on that and that's what we're determined to do is get the right balance between taking care of our people.
And.
Maintaining our government contractor status.
Okay. Thank you. Our next question today comes from Dawn Gilbertson as USA today. Please go ahead.
Hi, good morning, an unbelievable unbelievably, it's still morning here.
I think this is for Gary or Bob.
Bob.
Yeah.
On the vaccine mandate from the consumer perspective, United CEO made some pretty strong comments yesterday warning about potential holiday travel chaos that other airlines that are still going through this vaccine mandate issue going so far as to say buyer Beware.
Could this.
Paul.
From this trip you up over the holidays, and if not why not and one of the examples I'll cite that he gave was you know say there is a testing regimen put in place. He said that you know potentially you guys could have a lot of last minute, Kansas. He didn't say you specifically airlines could have a lot of last minute cancellations with people tested positive.
Any.
And so forth. So I just would like to get your thoughts on that and secondly, I would also like to note.
Who is deciding.
Is it southwest.
People, who get to these exemptions and how rigorous the process isn't it because it seems like you guys are encouraging people to apply for these.
Thank you.
Yeah, we're not going to.
Disrupt travel and the White house has been clear that they don't they do not want travel disrupted.
Ever much less during the holidays.
They understand that.
There is a process that we worked through with people who have not.
Slide either by being vaccinated or being accommodated so they have made that clear we are very well aligned with the white house direction.
On all of that.
So again I would just say you know my duty is to take care of southwest Airlines my duties.
Not compare of our people and our customers and we are not going to let this disrupt any of our customers travel, especially during the busy holiday season with.
With respect to accommodations. This is something that is long standing within the company. It is a function that we have.
And lenders Department.
You are welcome to speak to this.
But we have a team of experts who know what the rules are.
And know how to apply them in terms of medical or religious accommodations.
I believe it's titled seven for religious and.
The Ada for medical so.
It's not anything new and they are expert at it.
What we're trying to do right now is to see what accommodation requests we get so that we can ensure that we're consistent.
In terms of.
Who we accept and who we deny obviously.
We're trying to work with our people here.
Take good care of them in terms of encouragement, we're encouraging people to get vaccinated period. We bet. There is nothing new of that I've been doing that since the vaccine came out.
And nothing has changed there I only thing Thats changed is we've got this executive order that mandates the vaccine and.
We are working through that.
And the good faith way and with our best efforts.
Thank you wanted to add.
Sure.
Do you are you guys seeking an extension on this deadline.
From the government.
We're.
Using our best efforts to make the deadline.
We have not asked for an extension.
Great progress.
Our employees.
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We'll see what happens we will see where we get to on November the 24th which is the key date in other words to make the December 8th deadline.
Because of the.
Because of the two week.
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I'm period anything you want to add on the accommodation process Linda No I think I think you handled it well. It's just our are all out efforts around education and awareness is to get employees in one of two buckets and that is to be vaccinated.
<unk> seeking accommodation if that is what they need.
And as I think everyone everyone on the call knows.
It's a political issue, it's a polarizing issue and they are very strong feelings among some on both sides of this question. So.
Sure.
My job is to take care of southwest to take care of all of our people whether they're on one side or the other and we're going to do our darnedest to to accomplish that.
Yeah.
Thanks.
Ladies and gentlemen, our next question comes from David Koenig with the associated.
Please go ahead.
Good afternoon, and I apologize if my questions have been mostly asked and answered, but just to clarify a couple of things.
Do you have an assurance from the administration that they will let.
Contractors, such as yourself, except testing instead of vaccination.
And as an accommodation for some of your employees and and my other question is no.
Maybe not a question but.
I raised this earlier with the folks at American United and Delta gave numbers and percentages on the number of people vaccinated early on and then just updated it and I'm.
I'm wondering why you can't do that as well.
Yeah.
David I can't I, just can't pass up the opportunity to say.
Debt.
I agree with your thought that executives ought to have at least two alcoholic drinks before these conference calls.
However, I will.
We'll say that no one in this room has done that so.
I believe in the Herb Kelleher way.
But we're not subscribing to at least not yet.
Now I've talked enough and I forgot your questions but.
On the on the percentages.
Our prepared.
Prepared to share percentages, because I don't believe they would be helpful or realistic.
We've got a November 24th deadline that we're working hard towards.
The majority of our employees have responded.
To the call for either an accommodation.
<unk> vaccination and the Super majority of those who have reported so far.
Are vaccinated.
But I don't I don't know whether that percentage would be meaningful irrelevant too because there's a large percentage of we have not heard from yet and I have no idea.
What they will do or how vaccinate.
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And just remind me what your first question was I was wondering if thats having any.
No the administration.
No we haven't of course, not deep you you've got the executive order and so do we.
You either get a medical accommodation or religious accommodation.
Now whether theres a testing a requirement for those who are accommodated.
There's no guidance in the order on that.
We are aware, obviously of the proposed Osha regulation, which has not come out and which does provide for testing.
The two are not reconciled.
For us at this point.
We are working on all fronts, but but yes, we know what you know on that front.
Okay.
Okay. Thank you.
So gentlemen, this concludes our question and answer session I'd like to turn the conference back over to MS. Rutherford for any closing remarks.
Thank you Rocco of course any members of the media who have follow up please contact our communications group. They are standing by at Q1 for 790 4847, you can always visit www Dot SW.
It wouldn't be a dot com. Thank you all for joining us.
Thank you Ma'am. This conference has now concluded we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.