Q4 2021 Southwest Airlines Co Earnings Call

January 27, 2022

And second, we had a few special items in our fourth-quarter results, which we excluded from our trends and for non-GAAP purposes, and we will reference these non-GAAP results in our remarks today.

So please see our press release from this morning, and our IR website for more information and our cautionary statement, which covers these topics in more detail.

So with that, I have the pleasure of turning it over one last time to my friend Gary Kelly.

Thank you, Brian and good morning, everybody and thank you for joining us for the Southwest Airlines fourth quarter 2021 earnings call.

First and foremost, I'm delighted to be able to say there were earnings.

Better than we thought at Investor Day last month.

It's obviously, a great way to end a tough.

But much improved year, a great way to start a new year.

We are, of course, fighting our way through the omicron surge in January, February and looking forward to a strong rebound in March and thereafter.

And as always that's barring any unforeseen events.

I expect we will make great progress in 2022, and we will enjoy another much improved year.

As we all know too well, it will not be without its challenges, but our people.

And our leadership are more than up to the task I'm enormously proud of all of them and I thank them profusely for their resilience and their perseverance through this myriad of challenges that we face in the last two years, they've just done a phenomenal job.

Southwest is on top because our people deliver great service and low fares. And our business model delivers consistent profits at handsome returns on capital and we've emerged from two years of pandemic with our balance sheet strength and our liquidity intact.

And we are perfectly positioned to restore, to expand and compete aggressively in the coming years and I could not be more enthused and more excited about our future.

So with that, I'm going to turn it over to our outstanding CEO and waiting for five more days, Mr. Bob Jordan.

Well, thank you Gary and hello, everybody. We were last together on December eight at Investor Day, and a lot has happened since then.

But before I get to that, I want to thank my friend, Gary Kelly.

Gary is a phenomenal leader.

And has done so much for Southwest and for me personally.

There's no there's just no way to say thank you enough for his 18 years of leadership as our CEO and I am thrilled that he will be our executive chairman.

I'll take over the CEO responsibility for Investor meetings going forward. So this is Gary's last earning call. And my friend, I just want to stop and say a huge thank you and I love you.

While 2022 has had a challenging start. But that doesn't change our goals for the year. Getting properly staff, focusing on our people, making meaningful progress returning to our historic operational reliability and efficiency, providing our legendary hospitality and returning to consistent profitability, we made significant progress in

'21 including a profitable fourth quarter. Despite the pandemic and saw strong demand, 88% of 2019 revenues restored and manage business demand ahead of our expectations for December. While we don't expect to be profitable this quarter. The omicron impact does appear to be isolated to January and February.

And 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.

Our people perform just really well during the fourth quarter as they always do in particular during the holidays and demand held up well through year-end. Despite the omicron variant beginning in early January, we experienced a very difficult environment due to rapidly rising COVID-19 cases, and a decrease in available staffing levels.

It's amazing when in the first three weeks, we had roughly 5000 employees test positive for COVID.

With employee cases, roughly two and a half times, what they were during the Delta area, the resulting staffing shortage combined with winter weather caused a spike in flight cancelled and a significant disruption to the operation.

I am pleased to report though that over the last few weeks the operation and staffing have stabilized and we've seen performance even better than during the holidays yesterday. For example, we were 95% on time, which off just hugely proud of.

To maintain sufficient available staff, we extended incentive pay programs for ops employees through early February.

While that does add temporary cost pressure, it's imperative that we have sufficient staff to operate our schedule and minimize our flight cancellations. COVID case counts are on a downward trend and we intend to normalize our staffing and pay structure as a result.

Hiring is part of the equation of course, and we met our 2021 hiring goals and we are on track with plans to add at least 8,000 employees this year.

We're also raising our starting wage rates to be competitive in the market and due to the impacts from omicron and the variant and a recent staffing challenges and were further moderating our first half 2022 capacity plans to provide additional buffer for the operation.

We're encouraged by the recent improvement in bookings across the booking curve, especially in the March timeframe and we are hopeful that business travel will resume the 2021 trend.

It appears that omicron impacts are pretty well contained to January and February from a revenue perspective, and we believe our temporary approach to boost available staffing is working. We will stay flexible of course, and we will be willing to further adjust our plans.

If needed. So several things have transpired since Investor day, all driven by the pandemic, though but for omicron, we would be on our Investor day, Q1, and full-year 2022 guidance.

Several things have transpired since Investor day, all driven by the pandemic, though but for omicron, we would be on our Investor day, Q1, and full year 2022 guidance.

However, I want you to know, make no mistake, we are laser-focused on preserving our low-cost position in the industry and returning to 2018 productivity and efficiency levels by the end of 2023.

We believe Q1, CASM X as a peak and our plans call for unit cost to ease from here into 2023.

Looking at 2023, based on current growth plans, we expect CASM ex to be down as compared to 2022.

Restoring both the network and our fleet efficiency are key to returning to historic efficiency levels. And beyond that, I'm really excited about opportunities. They continue network growth as we add gains in key cities, such as Denver, and Phoenix, and Las Vegas, Baltimore, Nashville, and even more.

Beyond 2023, we see opportunities to meet and beat our historic productivity and efficiency levels. As we continued to grow the company and focus on modernizing our operational tools and processes and Mike will talk more about that.

I don't want to repeat my main message from Investor day. Despite the near term noise, we have a superb business model with substantial underlying competitive advantages, we have a great five-year strategy and a strong set of initiatives that will drive significant value our new co-brand credit card agreement is in place with our partner Chase.

Our GDS expansion is complete and our Southwest business team is armed with the tools they need to grow our business customer base.

We continue to work on our new fare product and our revenue management system optimization, so more to come there, but both should begin producing value this year. And as we continue retiring older 737, 700 aircraft and taking the Max aircraft this year in support of our fleet modernization initiatives as well.

All combined, these initiatives are expected to deliver incremental EBIT of 1 to $1.5 billion in 2023.

And we continue to expect roughly half of that value this year given the initiatives in place.

Like Gary said last but not least, I just want to thank our amazing people. There have been all kinds of challenges and they have performed superbly. They continued to do an incredible job and managed through all of these challenges I am just in all of them and together, we will emerge from the pandemic and we will seize the opportunities in front of us.

In front of us and with that, I will turn it over to Tammy.

Hello, everyone and thank you, Bob.

I've worked with Bob for a long time and I agree with Gary. He is going to be great as CEO.

And my friend, Gary Kelly.

You are amazing and I just want to thank you for all that you've done.

For our company and for all of us and for all of our shareholders.

And I'm not going to say anything else, because I will get chocked up.

So instead, I'm going to provide a quick overview of our financial results and share some additional color on our outlook.

Beyond what we provided in our press release to you all this morning.

And I also just want to thank our employees for their incredible resilience as we manage through this dynamic environment. It is their hard work dedication and focus.

They're incredible resilience as we manage through this dynamic environment. It is their hard work dedication and focus.

That enabled us to achieve an important milestone in our recovery with our first quarterly profit since the pandemic began.

We reported a $68 million profit in fourth quarter.

Or 11 cents per diluted share and excluding special items, we reported an $85 million profit.

Or 14 cents per diluted share.

As Bob mentioned, our fourth-quarter profit was driven by strong leisure demand during the holidays business travel momentum and incredible and incremental revenue from our new co-brand credit card agreement with Chase.

Our fourth-quarter results were all within the guidance ranges provided last month at Investor Day.

For full-year 2021, and our net income was $977 million or $1.61 per diluted share driven by $2.7 billion of payroll support program proceeds.

Excluding of this temporary benefit salary wages and benefits expense and other smaller special items, our full-year net loss with $1.3 billion or $2.15 loss per diluted share.

Andrew will cover our revenue trends and outlook here in a minute.

Taking a look at costs, we continue to experience inflationary cost pressure experienced in

Fourth quarter, primarily in salary wages and benefits and airport costs as expected.

A portion relates to hiring and we made great strides toward our hiring efforts in 2021 and remain on track with plans this year.

And of course, the labor market continues to be a challenge, which continue to pressure wage rates across the board.

Since Investor day, we have experienced additional cost pressures related to omicron and winter weather as a result, our first quarter.

Unit cost inflation, compared with first quarter 2019, and excluding fuel special items and profit sharing has increased about 10 points.

Roughly half of that increase is driven by the 150 million of additional incentive pay we are offering to operations employees through early February and the other half is associated with buying fewer ASM than we were planning.

In light of the significant impact from the omicron wave unavailable staffing extending the temporary incentive pay and further reducing our capacity were necessary steps to stabilize the operation.

Aside from these impacts.

We would be on track with our previous unit cost outlook.

Market fuel prices have continued.

To rise here, which also resulted in a 10% increase in our fuel cost per guidance per gallon guidance.

Our estimated first quarter fuel price.

In the $2.25 to $2.35 per gallon range is also roughly 25% higher than our first quarter 2019 fuel price and map inclusive of an estimated 35%.

Of hedging gains here in the first quarter.

Turning to our full-year guidance at Investor Day, we were planning for capacity to be roughly flat versus 2019 level with no material impacts from the omicron variance on either revenues or costs at that time.

Fast forward to today, the impact from the Omicron variant on available staffing has led us to reevaluate our first half 2022 capacity plan.

In particular March through May.

Our planned flight schedule adjustments take some capacity upside optimism off the table.

For this year and reduces our full-year 2022 capacity outlook by about four points.

From roughly flat to down 4% versus 2019.

I've already covered the 150 million of additional incentive pay in the first quarter.

And in order to be more competitive on the hiring front, in particular for ground operations, we are raising starting wage rates from $50 per hour to $17 per hour, which is estimated to be a 20

to $25 million total impact of this year.

And of course, we have contemplated a labor rate inflation in our guidance as best we can for this year understanding that the market is somewhat uncertain.

This is clearly not where we hope to be along a recovery curve nearly two years into this pandemic.

But we are making great progress.

While we must remain nimble in this environment and take the necessary actions to take care of our employees and provide a reliable product for our customers.

We are very focused on the long term.

And determined to get back to 2018 levels of productivity and efficiency.

As we shared with you all at Investor Day.

As Bob said, our goal is to get there by the end of next year.

Although it is early based on our current plan for 2022 and preliminary plan for 2023, we expect 2023, CASM ex will decline year over year compared with 2022.

Longer term, our framework that we provided at Investor day remains unchanged. And that includes a post-pandemic target of mid-single-digit ASM growth accompanied by low single-digit CASM ex growth.

I want to be clear that our longer-term CASM X framework includes an estimate for labor rate increases.

As best we can estimate today.

Turning to fleet. We currently have 77 Max firm orders and 37 Max options with Boeing this year.

While our plan assumes we will exercise the remaining 37 options this year, we maintain the flexibility to evaluate that intention as decision points arise.

We continue to believe that taking the additional options this year.

We yield a positive NPV on aircraft replacement.

If we don't deploy them and the network.

As I have mentioned to you all before, we won't incur a material CASM ex penalty.

From holding on to extra aircraft in the event, we temporarily parked some of our dash 700 while capacity has moderated this year.

As we work our way back to an efficient utilization of the fleet. We remain in the fortunate position to have the flexibility needed with our retirement plans without a financial penalty.

I'll wrap up with a quick note on our balance sheet strength, we ended 2021 with liquidity of $16.5 billion.

Our leverage is at a very manageable 54%.

And we continue to be the only US airline with an investment-grade rating by all three rating agencies, which I believe is one of our key competitive advantages.

We have ample liquidity that allows us for further cushion in the event of further COVID-19 wave.

Overall, our balance sheet strength puts us in a category of one in terms of our ability to withstand shocks and remain financially healthy.

With that, I will turn it over to Andrew. Thank you very much, Tammy. I'll also start by extending my gratitude to Gary. I'll be forever grateful for all of these taught me with his words and actions.

I'll provide some additional color on our revenue trends and outlook and point you to our earnings release for more detail.

Looking back to our last earnings call in October, we were dealing with a delta variant the negative revenue impact for Q3 was $300 million.

At that time, we estimate the negative revenue impact to Q4 of $100 million.

Revenue trends have begun to pick up.

Pick back up and stabilize in mid-September and our outlook called for a sequential monthly improvement in revenues throughout Q4.

We reaffirm this in our early December Investor update when we close the quarter strong.

Our operating revenues finished within guidance down 11.8%.

And manage business revenues came in better than guidance down 50% in December.

We saw solid leisure demand for Thanksgiving and Christmas and business demand held up well with positive momentum from GDS [itself plus] business.

The negative revenue impact from the Delta variant came in lower than we thought at around $60 million.

As we saw continued rebound in demand and yields throughout the quarter.

However, we saw some choppiness in late December from decelerating bookings an increase in cancellations. We had a $30 million negative revenue impact from the omicron variant as COVID cases increased.

Combined, this $90 million COVID impact of Q4 was slightly less than our original estimate of $100 million from COVID.

As we were able to mitigate some of the load factor decreased through higher yields.

And of course, the most notable item in Q4 was incremental revenue from our new credit card agreement with Chase, which we covered at Investor Day and included in our most recent revenue guidance.

While we can't share the specifics about the incremental revenue from a new credit card agreement you can see the other revenues in fourth-quarter 2021 increased 20% compared with Q4 2019 far outpacing the recovery in passenger revenue.

And we are on track for expected benefits in 2022.

Our new markets continue to develop it performed overall in line with expectations. Aside from the impacts from the Delta and Omicron waves. Hawaii markets also showed improvement in all of these markets turned in line with a broad-based improvement we saw across the rest of the network.

Now looking at first quarter, we estimate the weather-related stuff related flight cancellations in January resulted in a $50 million negative impact operating revenues.

Additionally, bookings have slowed for January and February which are seasonally low travel periods anyway for leisure.

The trip cancellations were running quite high beginning in early January but have moderated and are back to normal trends.

We expect the omicron related negative revenue impact to January and February combined to be roughly $330 million.

Like the Delta variant, the impact of omicron related trip cancellations has been mainly focused in the close in window and we remain optimistic about the likelihood of demand recovery in time for spring break travel.

On the corporate travel side, the business demand we experienced in December has slowed. But we continue to believe there is pent up demand for business travel and we're hearing from many of our corporate customers that they intend to ramp up travel post Presidents' day.

I think that will depend on where we are with COVID case count of hospitalizations.

We are encouraged by what we're hearing from our customers in terms of their future travel plans.

We expect first-quarter managed business revenues to be down $45 to 55% versus 2019 and improved sequentially from January through March.

In our Southwest and GDS business initiatives is also on track for expected benefit to 2022.

When you put all of these moving parts together, that gets us to our first-quarter operating revenue guidance of down 10% to 15% versus first quarter of 2019.

This outlook is in line where we were in fourth quarter, but we are currently expecting.

Step change improvement in March.

As far as our other initiatives, new fare product remains on track for deployment by mid-year and the new revenue management system continues its progressive rollout.

And lastly, we're in the process of adjusting our published flight schedules in March through May in order to further support the operations and adjust available staffing trends.

The results of this exercise combined with the flight cancellations, we have experienced so far this month as a three point reduction in the first quarter of 2022 capacity from down 6% to down 9% compared with first quarter 2019.

And for full-year 2022, as Tammy mentioned is a four-point reduction for roughly flat to down 4% compared with the full year of 2019.

Our flight schedules remain subject to further adjustments if needed. But while this is a slight delay to our previous capacity plan. We still have time to get back on track as of March 2022, where roughly 75% restored based on trips and we continue to expect to restore the vast majority of our route network by the end of 2023.

And with that, I'll turn it over to Mike.

Well, thank you Andrew and hello, everyone.

Our people did face quite a bit of adversity in 2021, and I'm really proud of their tremendous finish to the year and they built quite a bit of momentum thus far into 2022.

As we've all said, we've moderated or we began moderating our capacity in the fourth quarter to provide more staffing cushion in the environment, but at the same time, we knew we had some peak holiday travel periods over Thanksgiving and Christmas through the new year's timeframe and we really did jump up our daily trips and we need all hands on deck to those periods.

And we incentive folks and we urge them are those that were willing to pick up over time or voluntarily work on their days off with premium pay.

And that certainly worked, our people really respond. And so if you exclude the day at Thanksgiving, we averaged about 3500 trips a day during that Thanksgiving holiday period, and that was up roughly 320 trips a day above the weeks leading into Thanksgiving and our on-time performance for that period was 87%.

And that was better than our five-year average. So we ran a similar play over the Christmas holiday and our daily trips there increased to roughly 3600 a day and again our people responded. So normally during the Christmas holiday, we deal with weather, but this year we also saw the beginning of a sudden and the

Surging spike in COVID cases, and because we had those people to pitch in to pick up extra shifts during that week of Christmas We had a completion factor of 99.2%.

And we had less than 1% of our flights canceled in face of that in the face of that COVID surge.

All told, we ended up the fourth quarter with an on-time performance of $72.6 mainly due to some of the challenges we faced in October.

That's certainly not up to our standards, we must do better and we will.

But our holiday performances were very good.

And we know that we can operate in our peak travel days when everyone is available. So we really have momentum to build on.

So in contrast to those previous holiday periods, January started in the face of severe weather and this omicron period spread rapidly and as Bob mentioned, we had roughly two five times the number of employees.

With COVID cases for omicron than we did with Delta. And we had roughly 5000 employees become sick in the first three weeks of January.

And so the biggest impacts or in terms of flight cancel cancellations for the period of time.

The first week of January, January one through January seven.

We canceled roughly 3,800 flights. About 1900 of those were for weather.

And about 600 of those were for staffing.

And then our on time performance of that period was 41.5%.

So we reinstated the incentive pay program to.

Encourage again, those who would come in and pick up extra shifts and help cover the flight schedule and again the response was superb.

We got all of that implemented and so from January 19th through the 25th our on-time performance jumped to almost 87%.

That leads the industry for marketing carriers and the incentive pay program runs through February eight.

We're also benefiting from a decline in our employees that were sidelined due to COVID-19.

Our case counts peaked in that first week of January and just by way of example.

We had over 700 pilots and 1500 flight attendants that were unable to work in that timeframe and thus the incentive program to help cover those that were out.

Those COVID-19 numbers have dropped substantially since then to roughly 100 to 150 people for each group and that's a lot closer than what.

To what we originally expected.

Next, we continue to aggressively hire. Bob mentioned that getting staffed is one of our key objectives for 2022.

We also want to make progress toward our historic operational reliability and efficiency metrics and then a lot of ways. Those go hand in hand, as we're not operating at optimal levels today, nor is on network restored where we wanted to be relative to 2019.

For the over 8000 employees that we intend to hire this year, about 40% of our flight crews. About 40% of them are ground operations. So it's very heavily operations focus to support the schedule this year and beyond as we resumed the growth.

As we restore the route network this year and into 2023, that should provide the foundation to recapture better-operating leverage. And we're also working on other initiatives to improve efficiencies. Of course, we've got the fleet modernization cost initiative, but we're also working on things like enhancing our turn times.

Which are already the best in the industry. Expanding self-service options for our customers and investing in daily schedule management tools, which will help us manage irregular operations more efficiently. So we've got many items in our technology and process improvement pipeline in order to support our low-cost position within the industry and improve our over.

And improve our overall efficiency and our resilience.

Just in closing, as we move forward into 2022.

We have an exceptional order book for the fleet with its economics and its flexibility we have new technology foundations in place for our maintenance and our airport systems, we have a laser focus on getting staffed and running a reliable operation and we're building an operations modernization portfolio of initiative that I touched on.

I touched on.

And our employees have sacrificed. They've worked hard through a challenging and ever-changing environment. And I think that positioned us well to carry this January momentum through the first quarter and beyond so I am immensely grateful for their grit their determination and of course their care for our customers and so with that, Ryan.

Back to you. Thank you, Mike and I believe we have analysts queued up. So Chad, if you'd please go ahead and begin our analyst Q&A.

Thank you. We will now begin the question and answer session. To ask a question you may press star then one on your touchtone phone.

If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question. Please press star then two.

And the first question will come from Jamie Baker with JPMorgan. Please go ahead.

Hey, good morning, everybody just quickly, Gary.

When I first met you back.

At [inaudible], I could not have been less relevant that you showed me just as much respect.

As you did to the Glen angles, and Kevin Murphy's and [inaudible] of that era, and it really meant a lot to me and it gave me the confidence to continue.

Career trajectory. I just wanted to thank you for that. I will sincerely.

Miss speaking to you on these calls, but I do look forward to hopefully being a thorn in Bob's side.

[inaudible]

I would expect nothing less.

Okay. Good, I'll start with Tami. So, Tammy, you emphasize that your cost outlook does envision higher wage rates, but I had asked you about that at Investor day, but at the time, you said you weren't accruing for new labor contracts I think I, probably got my wireless growth could you just clarify that there is something for new use.

For new union contracts in your forward cost guide. Is that accurate?

Yes, no. Thanks, Jamie and I appreciate the question there so, yes.

Yes, we are not currently accruing for open labor contract today. So we are not accruing for that so there is nothing.

In our first quarter guidance.

Longer term, though we have incorporated.

Our best estimate of annual labor rate increases into all.

All of our targets.

So here and then here just to be clear for 2022.

We.

We know we can we have some inflation here. So we're doing our very fast.

To incorporate.

What we think we're going to incur here in 2022.

So hopefully that clears that up.

It does, thank you very much and any update on the fourth fare.

Wrong that you intend to load this spring. Are you still on track? If you're not ready to disclose what it includes, could you share any ideas that maybe you ruled out from a pricing perspective?

Hi, Jamie. It's Andrew answering your question. We are = still on track for a mid-year of rollout of that we're going through right now the technology user acceptance. So that's all going well.

We expect this to be above wanted to get away. So we've rolled out we've taken away features from customers of charges or more of these will be features that are in addition to wanted to get away for which we believe customers will happily pay a little bit extra. We also believe these features will be relevant.

Business travellers, especially from small and medium-sized business travelers. So that's how we want to position it versus say the fare product just above or just below it. Does that answer your question? It does indeed, thank you very much.

That will be it. I'm sure a lot of accolades come in for Gary.

I kept a bunch of you, take care.

And the next question will be from Duane [Pfennigwerth] with Evercore ISI. Please go ahead.

Hey. Thanks, I don't actually have any ancient Wall Street history, but I did want to ask you, Gary.

Ancient Wall Street history, but I did want to ask you Gary.

If you received any calls from music producers since you dropped your recent tribute.

We've always been very circumspect about confidential information here, so I'm going to have to.

To decline to answer your questions.

Fair enough, but I wish I wish you well on that journey.

With respect to the four point cut to full year capacity.

Is that all about the rate of demand improvement in first half or was any of that a function of kind of looking at the operation and deciding you need it even more buffer on staffing?

Yes, I'll jump in.

Andrew and others may want to chime in but we, it really was more about adjusting.

We.

It really was more about.

Adjusting and.

Being a little more cautious with regard to our operations, obviously omicron had a significant impact on us here in the first quarter.

So we felt that it was prudent to take some capacity out.

We felt that it was prudent to.

Take some capacity out.

As we have stabilized the operation.

We have stabilized the operation.

As you've heard us comment here.

We're doing a great job in that respect with really an outstanding performance here over the last couple of days.

I would add to what Tammy said.

It was designed to make it more operable and give Christian the operations. So that's both how much we're flying but also where we're flying given.

Some of our ground-based staffing shortages. So the combination of those two were the crux of it. Obviously, we look at demand, where we're making those adjustments.

The motivation here it was operational reliability.

The only thing I would add to that.

It's all the gas right at this point. So year, we're making our best guess based on.

We have terrific staffing plans. I'm confident we will meet those here in 2022.

If we get ahead of those.

Well, obviously, we preserve the ability to sort of work on our capacity on the other end and the back end of 2022, we just don't know yet but yes.

It's really all due to the staffing at this point, we've got to run a reliable operation we've got to have enough staff cushion.

And then you mentioned that with ground handling, but wonder if you could provide some anecdotes.

Where you know today, you're obviously overstaffed from a longer-term perspective.

What are some of the functions beyond ground handling? Were you keeping actively deciding to keep a higher buffer and where predictability is just not there yet?

Thanks for taking the questions.

Yes, my separate sort of.

There are experienced at the beginning of January and then the rest of the year.

As we had a really rapid rise in COVID cases in the first couple of weeks of January.

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A really rapid rise in Covid cases in the in the first couple of weeks of January yet.

Yet, you had an overall Southwest Airlines impact operationally and then you had very locational impacts. An example would be the Denver ramp we had a.

A rapid rise in our Denver cases on the Denver ramp and we literally had to quickly moderate the Denver schedule to be able to operate there.

But I think it's really the overall adjustments to capacity is really all groups, we need pilots, we need flight attendants, we need ramped staffing.

It's really the overall adjustments to capacity is really all groups, we need pilots, we need flight attendants, we need ramped staffing.

And you need the appropriate amount of buffer and all of those areas until we sort of see our way past COVID-19 and understand what more normalized staffing more normalized behavior is more normalized.

Sick leave looks like so I would argue we it's really not one group, we have buffer or looking for buffer and all of those groups.

Very helpful. Thank you.

You're welcome.

And the next question will come from Hunter Keay with Wolfe Research. Please go ahead.

Thank you.

Yes, I'll reiterate to Gary here. You're a legend man, it's been a pleasure. Thank you for keeping it interesting over the years.

I had a question for you.

I'd love to get your thoughts on the.

The industry's outlook over the next two to three years, it's not a question about Southwest. I'm sure you're going to say you are leaving the company in a good position to compete and win and succeed.

But as someone that's made a lot of good predictions over the years, what is your view sort of parting view on how the industry unfolds

competitively whatever growth-wise over the next two to three years?

Well, thanks, Hunter.

Well, I don't know how good of a prognosticator I've ever been.

I don't know how.

How good of a prognosticator I've ever been.

I don't think of myself that way. I think that if you compare the US to

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I think that.

If you compare the U S too.

Other countries. The US has lift the commercial airline industry.

The commercial airline industry and.

In pretty darn good shape.

And were it not for the cares Act, I think we'd be having a very different conversation. So I think it's just important to acknowledge that upfront.

Having said that, there are still.

Significant variations. So we are talking about the industry, it's hard to think about it that way because there is strong and there is weak.

There are strong balance sheets or a weak balance sheets.

And I think what we've experienced in 2021 is really humbling. A year ago.

What we've experienced.

In 2021 is really humbling.

A year ago.

You and I haven't talked in a while but I think.

Everyone I've run into or has this sort of.

Videotape replayed.

I would have never bet a year ago that this is where we would be here in early 2022, I thought we would have this pandemic beat and behind us.

And it's far from that.

So I think that that just sort of provides the same even bigger quandary now which is

Where do we think we're going to be with the pandemic two years from now.

We were honoring our former Dallas Mayor earlier this week.

And he and I were having the exact same conversation and his guests was 10 years, we're going to be dealing with this for 10 years.

So I think that has a direct correlation with travel tourism hospitality restaurants all of that.

Travel tourism hospitality restaurants all of that.

We just have to be, we need to hope for the best plan for the worst as sort of.

Age old advice that we've all gotten.

It does feel like business travel wants to come back.

And I think that's encouraging.

We were hoping for a stronger business travel here in Jan-Feb than what we're realizing we all know why that hasn't happened. So just again a perfect example.

But I think the industry is pretty darn well-capitalized it's taken a lot of debt, which is going to have to be carefully managed.

I think the industry is pretty darn well capitalized it's taken a lot of debt, which is going to have to be carefully managed.

We're going to have to be more heavily.

Dependent on consumer travel.

Than where we were before. I think international also kind of fits into that

International also kind of fits into that.

<unk>.

That category of, it's probably different in the future than it has been in recent history.

And we will just have to be prepared to be more successful domestically over the next couple of years.

We will just have to be prepared to be more successful domestically over the next couple of years, but.

In my opinion and that's why I put it in my remarks, I think it's the best service and the lowest price wins.

If you have that combination within the industry, you're going to win. I think it is a low-cost game.

Always, but I think give us even more acutely important right now and that will be laser focus for our leadership team certainly for the next couple of years.

That's very helpful. Thank you. I appreciate that and then.

I asked you this question about a year ago, Gary, but you are a never say never guy.

If there was anything you'd never.

Say never to.

I guess same question goes for Bob is there anything that we can expect.

That you would say you would never do as CEO or Southwest would never do as long as you're running the company.

There's some easy things here, we're not going to charge for bags.

We are not going to have change fees, I mean, we.

We're going to state, we're going to always be transparent, we're going to be open and honest with our consumers now.

Things change over the years for sure as, in my 34 years here at southwest we've changed our boarding.

We've changed some of our product. We've added Wi-Fi. We've added rapid rewards program. So things always change, but we're always going to lead to our customers. So yes, I think as the number one thing that comes to mind, obviously is no bag fees no change fees. The other thing is not going to change we're going to treat our employees right, we're going to treat our customers right.

<unk>.

And we're going to stand for service and we're going to stand for serving others before self.

Thank you very much congratulations, Gary.

The next question will be from Helane Becker with Cowen. Please go ahead.

Thank you very much operator, yes, Gary, I'm going to miss you as well.

In fact, you remember our first meeting.

You tell me Ami, we're sitting in my office at Lehman Brothers and it just seems like we're too young to retire.

And I wish you the best in whatever you decide to do with your free time going forward, although maybe not so much.

Free time that you'll have.

Yes.

So thank you actually for everything.

And then separate from that, my question is really not sure who wants to answer has to do with the.

My question is really not sure who wants to answer has to do with the.

The credit card program. Is there a way for Chase to separate out for you

The charges that come for

Charges that come for <unk>.

For travel and airline.

Versus charges that come for staff. Because as you think about going forward. The percentage of staff.

Yes.

Because as you think about.

Going forward.

The percentage of them.

Should decline of people have their pelotons and their computers and all the other stuff they bought during the pandemic and they should start to [shift back].

To travel so I'm wondering if Chase can parse that out for you and if you can gain any intelligence on that.

Hi, Helane, it's Andrew. Yes, as part of our.

[inaudible] with Chase, we do receive that on a regular basis and we review it on a regular basis and indeed as you probably were seeing through macroeconomic indicators.

Charges during the pandemic skewed towards goods and less towards services. And then the services would also mirror the pandemic and we could see when our restaurants, we're more active with our cardmembers or flight activity as well so that is something that.

I think trucks very well with what you see in the macroeconomics when you have it sort of in a high-frequency basis like this where we see it a bit earlier that does help us with understanding.

The pace and duration of these waves. So it's been very very useful for us and we expect a skew towards services going forward, which obviously would be beneficial to our industry.

Great. So you would expect the rate of growth with would what accelerate with services or decelerate?

The rate of growth with wood, what accelerate with services or decelerate.

It would accelerate given the composition of people spend services are underway now versus what they were in 2019 and gives our customers a very good balance sheet themselves. The stimulus program has put a lot of cash people's pockets and so they have some pent up demand of potential expenditures.

Above and beyond their kind of normal salary-based compensation basic spending. And so we expect that composition to revert back more to normal as we get past the pandemic whenever that might be as Gary pointed out, but so, therefore, services spending on our card and the economy as a whole should increase.

As the health crisis elevates.

Okay. That's very helpful. Thank you and then on the constraining spring capacity due to labor constraints.

Will you be able to offset that with pricing?

Okay.

I'll jump in on that.

Obviously, we don't comment on pricing. So we, as always we're going to work hard to achieve our financial objectives declined to comment specifically on pricing.

On.

Pricing.

So we.

As always we're going to work hard to achieve our financial objectives.

Declined to comment specifically on pricing.

And I might just point you to back to the fourth quarter, which is we had I think we had a really strong performance revenue pricing fair yield. So we I think on sort of.

My memory that was 92% or so of capacity restored. We had 88% of revenues restored which is leading in the industry and yields and fares were just slightly below.

So 2019, so not speaking to your direct question, but just if you look at the fourth quarter, we had a very strong revenue performance.

That's very helpful. Thanks, everybody. I'm sad, Gary.

Very sad.

Thank you and the next question will come from Mike Lindenberg from Deutsche Bank. Please go ahead.

Hey, good morning, everyone.

Gary, it goes without saying.

You're going to be missed.

To be on a Southwest conference call without Gary Kelly.

We're going to get used to it.

But Bob is the right guy.

In that regard, I do want to ask you one final question on a call.

In your new role or I should say new role, but as your continuing role on the board.

Will you still dress up for Halloween?

I don't think anybody can stop me. So I was [inaudible] if you or joys in life and I do have grandchildren, who get a kick out of it so but it's all about me and I really enjoy dressing up.

So.

I was wondering if you or joys in life and I do have grandchildren, who get a kick out of it so but it's all about me and I really enjoy dressing.

Okay.

That's great to hear so Gene Simmons will live on.

Through Gary Kelly.

[inaudible] He is still my pal.

He is still my Pal.

So thoughts on, alright, well onto a more serious topic here. I just I want to go back to the capacity change for 2022.

I guess, Tammi this is to you.

For the March quarter, you're shaving three points.

But for the full year.

You are cutting four points and it's obviously, having a tremendous upward pressure on your full year unit cost.

And you did highlight that the June quarter, it looks like it's going to take obviously, a big cut there, but as I think about the math.

Great.

It seems like that you are taking a lot out you did say you are being cautious that's all about returning operations.

Returning the integrity of the operations back to a normalcy.

It does feel like it's extra conservative or are you, does that down 4% for the year.

Assume that you're not going to exercise the 37 remaining options. Can you just give us some additional color there just it seems sizable?

Sure, I'll give some color here and then.

[inaudible] But, yes. I guess, we haven't.

Yes.

I guess, we haven't.

We haven't given up here on adding additional capacity in the second quarter again, we're just going to have to see.

Given up here on adding additional capacity in the second quarter again, we're just going to have to see.

Let's see how things go here on the staffing front and obviously as we've already said our priority is on the operations.

But in wherever we end up with regard to our capacity for the full year at least at this point in time.

We intend to exercise all of our remaining option okay.

Exercise all of our remaining option okay.

And the reasons for that is really straightforward.

Mike, we have a really strong NPV on those aircrafts either way, obviously, we hope that we're putting those into growing the network either in 2022.

We have a really.

Strong NPV on those aircrafts either way, obviously, we hope that we're putting those into growing the network either in 2020.

Or 2023.

But we have a lot of flexibility here and the fact is we just don't have to decide right now. So if we do not have a need for those in the network, we would just simply retire and accelerate the retirement of our dash seven hundreds so we're in the okay.

We we have a lot of flexibility here and there.

Fact is we just don't have to decide right now.

So.

If we do not.

Half.

Our need for those in the network, we would just simply retire and accelerate the retirement of our dash seven hundreds so we're in the okay.

Fortune here of having tremendous flexibility.

Flexibility, which was by design when we work through our order book.

With Boeing.

Okay. I would just add to that this is all a forecast. If you look at [inaudible].

I would just add to that this is all this is all a forecast if you look at yes look.

Look at Omicron, and how quickly we have adjusted I think.

My memory is our network planning team is doing two or three times the number of changes that they would typically.

So while we've got a great plan for '22.

It all comes down to hiring.

I'm pleased that were on our hiring plans for the fall and we're on our hiring plans so far for January.

But in the case that we're able to beat those we've got up you would have some upside, but we'll just continue to adjust I think.

In the case that we.

We're able to beat those we've got up you would have some upside, but we'll just continue to adjust I think.

If you look at our fleet today again, because we are.

Our flying in and therefore, our ASM, they're constrained based on our staffing. You probably have 5% to 6% of the fleet.

That is effectively [unplowed], in other words, we could be generating 5% to 6% more <unk> with the current fleet.

Hi.

But for the staffing, so we will work really hard to make progress there and so I wouldn't call that we've got a great plan, but I wouldn't call that you're done yet in terms of capacity.

Okay. So it is very fluid and then just, Bob, I guess, just as a quick follow up and this follows on Hunter, sort of never say never. You did mention change fees you talked about banks. I think I saw that a week or two ago. There was something about seat assignments, but again it may have been a reporter putting words in your mouth.

Anything that you can highlight with respect to that maybe it was a misinterpretation.

No, a reporter would never put words in your mouth right.

No.

No. It was just an illustration of that was sort of going through the kinds of things that over time. I think you have a duty to look at just like we have a duty.

It was just an illustration of that was sort of going through the kinds of things that overtime. I think you have a duty to look at just like we have a duty.

That Mike talked about our operational tools, we have a duty to look.

At our customer experience and how to enhance that. And at some point, I think just like we did years and years ago, we will probably want to resurrect.

The work that we did there and just understand.

What our customers prefer what our business customers prefer.

What that does to the efficiency of the operation. So there was no prediction at all it was just an example of the types of things that you do have to take a look at over time.

The efficiency of the operation. So there was no prediction at all it was just an example of the types of things that you do have to take a look at over time.

Okay, very good. Thanks again, Gary.

Yeah.

The next question will be from Savi [inaudible] from Raymond James. Please go ahead.

Hey, and good afternoon.

Just kind of curious on the managed business revenues I know you can you talked about expecting a step-change in March, but how does kind of the trends you're seeing today compare to how you exited the year and just any color on how much that is getting boosted by some of the GBS initiatives that you have.

That you can roll out.

Sure, Andrew. I'll start off by saying, we see that managed business travel like our overall travel fluctuate with COVID wave, so there'll be a period of time and the wave where cancellations.

Surge, and then bookings slowed down. And then the next part of that is as cases hospitalizations start to come in on the back side, we see those cancellations attenuate and bookings pick up so we're on the backside of that book.

Those bookings right now for managed business.

And so we could see that.

If we go back on the trend that we saw throughout 2021, where both of these ups and downs you are on a solid trend from January through December.

Now with regards to our initiatives, we can see that we are having a.

A shift of travel from our previous channels to the GDS, but we also can see those incremental on top of that now because COVID-19 has created such a disruption in travel patterns, we don't want to extrapolate and give final numbers on that but we already see that we are achieving a business case that is causing some channels.

Shift, but that was all part of our plan to be able to offer.

Our corporate customers the choice of the channels in which they want to buy with Southwest Airlines.

It makes sense and just curious.

Shifting gears, a little bit on the regional airline side you have some of your legacy competitors cut a lot of small markets.

Regional Airlines are struggling a little bit from a piloting standpoint, as well as some of that's 5G issues. I'm curious if you're seeing a benefit given that Southwest does slide into some of the smaller markets than you see some new LCC swang, if you're seeing any benefit from

From maybe this kind of capacity that is being constrained.

I can certainly, you read about.

There are unfortunate situations.

However, the COVID wave is such a predominant for some bookings right now, it's really hard to tease out a lot of other trends within that and so right now as Bob mentioned, we are managing our network for our customers and our employees and so that's really what we're aiming at.

So we don't really kind of look outside of our lane so to speak to what's going with others to be opportunistic because right now we're just trying to keep ourselves good stable operations and achieve our financial goals.

Makes sense. Alright, and then Gary. I would like to echo a lot of the comments other than shared on this call and wish you the best.

And the next question will be from David Vernon from Bernstein. Please go ahead.

Hey, good afternoon, everyone and thanks for the time. I was wondering if you could give us an update on where you are with Boeing on getting the Max seven certified. And as you look at the next two-three years, obviously at 136 firm orders 60, or so more options.

How do we think about retirement expectations in relation to that? Should we be thinking that as these aircrafts are coming in you're going to be

Retiring or getting rid of some of the older classics.

Getting rid of some of the older classics.

Yeah. So David this is Mike. So we've got about 450-ish.

700, and so at least half of our order book will probably be focused on replacing those airplanes Boeing is telling us that they're targeting ATC for the Max seven.

By the end of the first quarter. Of course, that's contingent on the FAA.

Review processes, which is a little bit different for new airplanes. After the Max grounding once they get that type certificate.

It will take us about seven months. We were planning on about seven months to be able to bring that airplane on our operating certificate. So we'll need to do things like get performance data from Boeing for the airplane.

And just that performance that into our system to do all the quality assurance work on that update our manuals and then get our own CMO to approve our manuals before we can add the airplane door up spec.

So we've just got we've got a lot of flexibility in that order book.

Boeing is a very good partner with us and so we still expect to take.

The 114 airplanes at this point.

But we may not be flying the Max seven until early 2023.

Thank you, that's very helpful and Andrew maybe just as a quick follow up.

I'm assuming that despite the lack of business travel.

But the selling efforts on the corporate side have been continuing through the pandemic. Is there any color you can give to us in terms of how GBS enrollment has impacted your traction in terms of like the number of corporate units you had or the win rate? And in bid process. Anything you can give us to help us gauge kind of how effective.

This is going to be in terms of the continuum for corporate share going forward would be really helpful.

Certainly, I'll try to give some color. You can also look in the art got it because we went into the GDS, but also settled into art. So you can track for yourself, what we're selling in arc as well, but if you look at our accounts, even going before going into the GDS, especially going to Sabre, we had built up our corporate sales force in anticipation of this.

In our overall effort had increased the number of our accounts like we shared in Investor day now these accounts they buy through multiple channels already.

Some may be 100% one channel, but today you take our largest.

Corporate clients and they will buy through swap as they will buy through our direct connect and now they'll buy through GDS is well it depends on the travel purpose as well as the

Subsidiary or a population group within that company of how they buy and so what we're doing is we're letting them move.

In between and we do see some like the government moving pretty strongly towards.

Some GDS transactions. We see professional services not really abandoning some of the first to the direct connect in the swap is in adding on GTS on top of it. So it really depends on the travel purpose and on the corporation as to which channel. They prefer which is the thesis of our strategy of let the customer choose and get out the way it stopped having friction.

And so as I mentioned earlier, the COVID waves are really scramble of trend. So you can't be as precise as it would be a normal times, but at the highest level, we do see incremental volume we are getting.

And we're hearing from corporate so they are giving us incremental volume.

When we speak of because of these channels.

Okay. Thank you and Gary. Thanks for all the time and congratulations on the move up.

Thank you. We have time for one more question, we'll take our last question from Sheila [inaudible] from Jefferies. Please go ahead.

Thank you, Gary. I echo those comments and congratulations.

Maybe if I could ask about the bottleneck in terms of ramping capacity.

From '22, and '23, it seems like a lot of the industry has faced supply constraints rather than demand constrained, especially domestically.

How do you think about Southwest overcoming those challenges? You take on 200 aircraft or so and I understand maybe half of those are for replacement.

I'll jump in and start you all can add. In 2021.

Jump in and start you all can add.

In 2021.

We made some assumptions about the operating environment that we would be in an environment that people would live in and it was just clear to us as we went through this delta variant that environment.

It was not appropriate and we've spent a lot of time in 2021 reacting to that.

Caused our crews to be rescheduled it caused irregular operations and we had a reliability.

For the challenge for the airline. Our approach in 2022 really is to just.

Accept that the environment that we're in currently might be the environment that we're in for a while and go ahead and plan the airline and staff the airline like that.

And so that's what you're seeing with respect to the capacity adjustments here in 2022 is just making the assumption that let's still assume things are going to get better until they actually do.

So we have a very aggressive plan to go hire people. I think our wage rate increases, especially in the frontline for the ground will help us accelerate our staffing I think we will have plenty of access to pilots and flight attendants. So I feel good that our staffing plan is going to.

To come to fruition.

And then the question just is as we bring the people on and we mitigate.

The premium pay, we mitigate.

Some of the irregular operations, we run a more stable operation. Can we, will we see different behaviors? And if we do, that gives us upside.

We will and Sheila, you had about just sort of what's the constraint.

At the beginning of the pandemic. It was all about managing down your capacity because of demand.

Demand fell 97% and then stay down 70 for a long time. So it was all about managing to lower demand, whether that's not where we are today.

Again sort of back to the fourth quarter.

We had stronger obviously strong revenue strong yields strong fairly strong demand.

Overall and that's what business.

Demand down 50%, so very strong leisure. In my mind leisure has returned to 2019.

Obviously, that was interrupted by omicron, but I'm confident that the leisure demand is restored.

Leisure demand is restored.

And we just need to get the staffing levels to the point, where we can operate our aircraft operate them reliably produce the kind of operational performance at our customers need and want and deserve and it's just going to take staffing to do that.

And obviously, that staffing and a strong labor market and which is why you saw us raise our starting wages, but note to me is the module. The moderation is all about staffing now not because of any concern over demand.

And so then again you layer onto the fourth quarter.

The 50% recovery in business continues to recover in 2022, and we're hopeful that it recovers by the end of the year to say down 10 to 20.

I think we will have plenty of demand, it's all about getting the hiring to restore the capacity.

Okay. Thank you.

Thank you, Sheila.

Alright, any left off before we wrap up?

Yes, thanks, Brian I just wanted to acknowledge all the kind comments from everyone. I am very very appreciative of that.

Acknowledge.

All the current comments from everyone very very appreciative of that.

And some of the old-timers caused me to reminisce when I started.

Some of the old timers caused me to reminisce when I started.

As CFO, it was 1989.

And in those days, we didn't do this.

I was investor relations and Tammy is laughing.

Because I had to beg her five years into this to bail me out, but I did the investor relations.

We had the CFO.

We had a controller and treasurer.

And we're cheap now, but we were really cheap then. So we had one assistant.

That supported all three of us and to the Investor Relations. So we would send out, we had this auto fax.

[Auto fax] system.

Where we would fax out the press releases and then some of you would be really angry with us because you were at the bottom of the fax list, which meant that fewer I don't know how long this damn thing.

The press releases and then some of you would be really angry with us because you were at the bottom of the fax list, which meant that fewer I don't know how long this damn thing.

It was not instantaneous so put it that way.

And then I would talk to each analyst individually on the phone.

And then when I couldn't take it anymore.

I Couldnt take it anymore.

I begged Tammy to come over from leading financial reporting to come do Investor Relations for the. She was the very first Investor relations professional in the history of Southwest Airlines.

She modernized all of the things that we enjoy today.

It took a while for her to beat that into me, but she eventually did.

The other thing that cause me to reminisce on is.

Tammy who was and is a star, she moved on to other jobs and hired Marci.

And then Marcy moved on to other jobs and now we hired Ryan.

Marcy moved on to other jobs and now we are Ryan.

That's pretty remarkable in a 33 years' time.

We've only had three people, three different people leading investor relations. So I'm very proud of you, guys.

And for all my friends here, I will tell you and I've told all my Southwest colleagues this, I learned more from doing Investor relations that I learned going to school.

And the questions that you all have, the ideas the way you challenge me, at least over the years has been invaluable. And not to mention the very rich.

Mi at least over the years has been invaluable and not to mention the <unk>.

Very rich.

Friendships that we had. Alain will remember it.

I think I was controller at the time in the late eighties, we would do a show at the Big Shearson Lehman Hutton.

Investor conference, which was multi-days and people come they would stay.

For days and then Southwest would put on this.

This broadway like parody of the industry, we pick on Franklin Renzo, especially it was a good friend of mine by the way and [inaudible] and others, but Helane I remember the first year that you came on working for Bob.

Like parity of the industry, we pick on Franklin Renzo, especially it was a good friend of mine by the way and <unk> and others, but Helane I remember the first year that you came on working for Bob <unk>.

We parodied you in.

We had an actor walk across the stage. I don't remember the song, but we had we anointed Helane Ms Shearson Lehman Hutton.

She added a lot of glamour.

To the sell side analyst community. To this day.

To this day, but.

But in any event.

I am very grateful for the friendships.

Very blessed to have been in a really great company for 36 years.

And I just heard this morning that I knew Parker was.

Retiring in March and I didn't translate that into what that means that this is his last analyst call. And I was told that he reported that he has done between being CEO and CFO of 107 of these quarterly things and I did the math on mine.

It didn't translate that into what that means that this is his last analyst call and I was told that he reported that he has done between being CEO and CFO of 107 of these quarterly things and I did the math on mine.

And I want every one of you to know that it's 134 for me.

Not that I'm keeping score with Parker.

But I will leave you all with that and leave Southwest Airlines in great hands. And as you all know, I'm not going anywhere. We've got lots of work to do.

And I'm going to be here doing my little part.

So Ryan. Thank you very much back to you, sir. That's fantastic. Thank you for sure and of course, you are a legend and I think you're the goat.

[inaudible]

Thank you.

[inaudible] And that wraps up the analyst portion of our call today. I appreciate everyone joining and have a great day.

Thank you, ladies and gentlemen, we will now begin our media portion of today's call. I'd like to first introduce Ms. Linda Rutherford, Executive Vice President of people and communications.

Thank you, Chad and we can go ahead and get started.

With the media portion of our call today. And just wanted to welcome everyone and you can go ahead, Chad if you want to just give them instructions to get queued up and we'll get started.

Thank you. To ask a question you may press star then one on your telephone keypad. If you're reasonably speakerphone. Please pick up your handset before pressing the keys. To withdraw your question. Please press star then two.

At this time, we will just pause momentarily to assemble that roster.

Thank you and the first question will come from Kyle Arnold with Dallas Morning News. Please go ahead.

Ahead.

Thanks, I was wondering what those 5,000 COVID-19

[inaudible] that you had in January, how much will fallout are you seeing from

Are all of those individuals being sick themselves? Have you guys seen much fallout from family members or from schools being closed daycare, those kind of other hiccups that were seeing in the economy?

Individuals being sick themselves have you guys seen much fallout from <unk>.

Family members or from schools being closed daycare those kind of other hiccups that were seeing in the economy.

Okay.

The.

Those were all people that had tested positive for COVID themselves, they weren't not coming to work because of.

Tested positive for Covid themselves, they werent, they werent not coming to work because of.

some family issues. They tested positive and reported a positive COVID-19 to us.

And the good thing too is the different than Delta.

Yes.

The cases came on really quickly so the rise was alarming, but on the other side. The fall in the cases was was similar so the way it was very narrow which was painful on the front end helpful. On the backend because we've got people back a lot faster than delta.

Okay.

But no doubt everything that you mentioned, Kyle.

I am sure we were incurring too.

It's just been an incredibly challenging time for everyone. So all the additional demands that households have now, I'm sure impacted that. With just being caring for a sick child.

Caring for sick.

Our child or.

Or a school closure.

Jim.

Are just dealing with everyday lives. So I think that would be on top of.

The numbers that we shared with you.

I appreciate that.

The next question will be from Leslie Joseph from CNBC. Please go ahead.

Hi, good afternoon, everyone.

Thanks for taking my question.

With your hiring for 2022, I was wondering how much of those.

How many of those people are replacing other workers? And net where do you expect to end up in headcount by the end of the year?

Overall do you expect salaries to be lower than 2019 before the pandemic with junior workers are coming in?

So Leslie the 8,000 number.

That you hear that. That would be the net increase in our full-time active equivalent employees.

It would be the net increase in our full time active equivalent employees.

And then one of the benefits that you do get from hiring people is you do.

One of the benefits that you do get from hiring people is you do.

Get to average down, the scale increases in the contract and we've got about.

The scale increases in the contract and and we've got about.

Like I said earlier, about 40% of that group will be flight crews, 40% will be ground ups. All of those recovered work groups and so I do think we'll have an opportunity on our wage rates.

<unk> crews, 40% will be ground ups all of those recovered work groups and so I do think we'll have an opportunity on our on our wage rates.

As we have newer people come in to average those down. I haven't looked and see what that means exactly as compared to 2019.

And we will just, that's a good question.

And I think. Okay, and then overall your. Oh, sorry go ahead.

Yeah, one thing embedded in your question may be and then just the numbers on the totals I think.

And maybe you were implying so what is it an add-in and what's happening to attrition. Our attrition is up during COVID-19, our attrition is up modestly, but it's not up alarmingly.

Which is a good thing, but sort of back to the numbers, I think we're ending we ended at 21 at roughly 55,000 active employees. You add the 8000 plus and so the plan would be to end.

2022 at about 63-64000 active.

Okay. Thank you.

You're welcome.

The next question will come from Alison Sider with Wall Street Journal. Please go ahead.

Hi, thanks so much.

I think we've probably asked about this but pretty much every quarter, but just curious what you're hearing or what you're picking up about the mandate and the likelihood it would get extended.

Yes, just curious how you're seeing that playing out in a couple of months.

Hey, Allison.

Well.

Yes, I don't believe there is any current discussion about extending or terminating the mask mandate.

Extending or terminating the vast mandate.

I think it's well established that once your onboard the aircraft the environment is very healthy with the.

It's well established that once your onboard the aircraft the environment is very healthy with the.

Continuous air refresh. Adding the masked is an added layer of safety.

Given the fact that we're right in the midst of this omicron surge.

Now is not really the time to revisit that question.

And in our opinion.

And I think that's representative of the 848 opinion as well. We survey our customers.

There is still a significant number of customers who.

Feel safer with a mask.

They will come a time when the mask won't be necessary. I think we'll all look forward to that but right now.

Right now it's not the right time.

And I guess, if I can ask one about hiring and kind of the challenging labor market.

In addition to the minimum wage increase just curious if there's anything else you are doing.

Minimum wage increase just curious if theres anything else you are doing.

You talked about kind of making on the spot offers and doing all these stop bears. Are you, are there any other kind of creative tactics here, having to utilize to bring in all these people/

Yeah, Allison I think in the current.

Tough environment you use every lever that you have and so obviously you've seen us move our starting wage rates along from sort of where they were at a 15 to 17 in some airports they are even 20.

At this point. We've got a team that's worked very hard on the processes. So how can you take steps out of the process.

I'm just making this up but if it took 30 days to get from interviewed a higher can we get that depend or eight.

Because the longer that process, the more you run the risk that that person takes a job somewhere else. We're doing instant offers in some cases as you mentioned, we're using different techniques to

Get people into the funnel of hiring so a lot of social media.

A lot of mining for information. So I would just tell you we are using every lever out there because I mean southwest is a wonderful company.

We get our share of resumes and interest, but it's just tougher than normal and so we're turning over every rock in terms of what we can do to hire employees and a lot of that is yes. It's about PE and it's about pace.

Yeah.

Thanks so much.

You're welcome.

And the next question will be from Dawn Gilbertson from USA today. Please go ahead.

Hi. Good morning, Gary, you mentioned 1989 on a sound a little bit like Jamie Baker here, but I'm in possession of a Gary Kelly, Vice President of Finance business card. I'm wondering maybe I can monetize it through an NFT or something.

I wanted to wish you well.

Thank you, Dawn.

I remember all the rough interviews I had to suffer through with us.

Right.

A couple of questions here on the traveler front. First, pretty quickly on the March to May flight cuts could someone put that capacity decreased into the number of daily flights for me and tell me how much of that business is already on the books in other words, how many people you're going to have to notify again about schedule changes and then.

More importantly on the new fair category.

Bob, I'm wondering I think Andrew mentioned.

We're not going to take anything away from wanna get away and I'm wondering if you're willing to go on the record to say I mean with something like offering people who buy one get a wanted to get away. One bag instead of two, is that does that taking something away? And on a related front on that, I'm trying to figure out what could you guys add that you don't always have in mind.

goes to early boarding.

So are you considering adding early boarding, the early bird fee to

To that second fair category? Because I know you are in some test a couple of years ago, you called it wanna getaway plus. And if you do include

Early bird in this new fare category with early bird has an ancillary item go away.

No. I'll let Andrew come back to the flight, but yes, so you need to join our marketing team because you probably put everything that we've looked at on the table, but I'll just tell you. It's just too early to give away exactly what where for a lot of reasons competitively, we're not ready to reveal exactly what that fair product looks like.

Andrew come back to the flight, but yes, so you need to join our marketing team because you probably put every.

Everything that we've looked at on the table, but I'll just tell you. It's just too early to give away exactly what where for a lot of reasons competitively, we're not ready to reveal exactly what that fair product looks like.

Andrew is right, we're not taking anything away. It is going to be very attractive in terms of where it's positioned.

I think it will be what you would expect from Southwest Airlines in terms of consumer-friendly, but we're just not ready to let you know, but it's coming soon.

And just to double down we will not take anything away from Wanna get away, so there'll be Wanna get away.

And above it, but we will not take anything away right want to get away.

And for the flight counts so much flight counts have already been prosecuted and so those have already been handled. The April through may have not yet been published so that's what were we mentioned in the press release and in our conversation that we are in the process of doing that so we don't have a flight count yet to give you on that those we expect to have prosecuted in a couple of weeks' time, so it'll be well.

Advance of travel will be less disruptive with the bookings.

With the bookings out that far.

Yes.

The bookings during COVID generally skew closer in.

So what we have that part of the book is modest so it will be some customers impacted but it'll be a modest number [inaudible] will advance.

If I can ask one very quick follow up on the new third category.

What are you going forward there? And I know it'll vary by route et cetera, et cetera, but obviously, this is a revenue initiative you've been talking about for a few years. What what are you going for in terms of the fare differential average fare differential between Wanna get away in whatever this new product is called? Thank you and again best to you, Gary.

So what we've done over the.

Pandemic, if you look at our website you will see more modest step ups between Wanna get away at any time.

And business select and we think that has had a monitory effect on our revenues and our customers are giving us good feedback and so we'd like.

More modest step-ups compared to what was perhaps there are a number of years ago. So having a fourth one that comes in there we would desire to have demand for products with modest step-ups in between with features that customers are willing to pay that modest step up for us. So it's designed to be pro-consumer and get someone who could so will it give us additional money.

Will give us additional features.

Thank you.

The next question will come from David Slotnick from TPG. Please go ahead.

Hello. Good afternoon. Thanks for the question and congratulations again, Gary.

I wanted to know if there is any update on when you are planning to bring back full onboard service, including alcohol.

Sure.

Okay. Yes.

Yes.

So we.

We had plan to bring that back.

Around the middle of February and we ended up because of the omicron.

Virus and just.

Yes.

Making sure that we had enough separation in the cabin for whom we delayed that.

And then so we're looking at that here sometime in late in the first quarter maybe.

Maybe early in the second quarter.

Okay. Thank you.

Thank you and the next question will come from Mary <unk> from Bloomberg News. Please go ahead.

Great. Thank you I wanted to ask two quick questions. The first is you had said.

Over the past year that you hope to add a total of 25000 workers over three years. So I wanted to see if you still think that's a realistic number if thats. When you will have to increase and the second question is for Gerry Gerry is there something that you were unable to accomplish in your years as CEO .

But you would like to see Bob take on and accomplished.

Yes.

Well, let me take the just take the hiring.

And again, sometimes you have to separate gross hiring and.

And net <unk>, we always have attrition.

But.

The 8000 as you think about our growth going forward. The 8000 per year that we're talking about here for 'twenty, two I can see that persisting.

We've got a lot of air into the future in future years, we've got a lot of aircraft coming this year, we got a 114 in our plan.

We've got a.

Lot of work to do to restore our network back to what it was in 2019 I think Andrew of roughly 75% restored at this point is my memory. So theres a lot of work to do to add back that the after we opened the 18 cities beyond that we have I mentioned this in my remarks, we've got a lot of growth opportunities.

We're picking up substantial gains in Denver, and Phoenix, and Baltimore, and Nashville, and others and so all of that will take aircraft and all of that will take employee so.

Is it exactly 25000 over three years I can't tell you that but you sort of take the 8000 in 2022 and extrapolate that and has a significant number.

And Mary.

I hadn't really thought about the way you asked the question, but it was a wonderful question I think the.

As we think about southwest Airlines and.

<unk> 51.

It is so much stronger and better prepared.

At any point in time in our history, and I think back 18 years ago.

We had a lot of challenges it was post 911.

The World was different there was a shift from away from short haul travel in the longer haul travel, we werent necessarily we're well prepared for that.

And a lot of things needed to be retooled.

And still retain the essence of southwest Airlines, which I feel like we've been able to do.

The speed of change in today's world is just faster than it was 20 years ago and.

So I would I would wish for Bob.

That we have.

A better technology platform in place compared to 18 years ago that would enable.

A faster.

More tactical like decisions for us anything that we wanted to do that was different.

And the two thousands mid year.

Years and millions in terms of construction. So it became a really significant strategic choice about which which drew.

Which road you took when you came to the fork.

So.

Alright.

I think we have a much more settled and stable strategic outlook today.

Which I know that both of us Bob as impatient and I think that that is.

That's a good or bad quality for a CEO , but certainly he is urgent.

And as Ben.

Huge contributor of course to getting us to this point and in laying out the direction that we're headed so it's not like these are new ideas for Bob He has been working on this for a long time like I have.

I think the one thing that I am grateful for looking back is that the things that we decided to do.

We had a very supportive board.

Had willing and eager employees to embrace the change and we were able to fulfill the visions that we had.

And that's pretty rare a lot of things you try they don't work.

For whatever reason they get derailed.

And.

For us we're pretty much able to do just about everything we wanted to do there's a couple of things that we that we.

Engage that we.

Set aside code sharing as an example.

Eventually we will come back to but.

If you look at the things that were accomplished in its a pretty Mighty list. There. So he has got just as ambitious a list going forward Mike.

He has detailed.

With with a few words, but theres a lot of depth to what mikes strategy is for ops.

And it's just critical to our future so.

Hats off to the technology and the business leaders, who have gotten us to this point, we're far better place today than we were then and.

I think we're as I said I think we're extremely well positioned certainly for the next five.

And beyond.

I'm very excited I'm, very enthused and I know Bob is too.

Great. Thanks, very much Gary and good luck going forward.

Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to MS. Rutherford for any closing remarks.

Thank you and I just wanted to add.

Now that you've had many hats to wear.

In the roles in the last 18 years and on behalf of the communications team just really wanted to thank you for being our chief spokesperson.

You've made our jobs easy and we appreciate and love you.

And with that if you have any further follow up for US you can reach for communications team at 2147, 90, 4847 or via the media website at Www Dot SWA media Dot com. Thank you.

Thank you. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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