Q1 2022 Southwest Airlines Co Earnings Call
Good day and welcome to the Southwest Airlines first quarter 2022 Conference call. My name is Chad and I will be moderating today's call.
This call is being recorded and a replay will be available on southwest Dot com in the Investor Relations section.
After today's prepared remarks, there will be an opportunity to ask questions.
To ask a question you May press Star then one on your telephone keypad.
Draw. 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 Chad and thank you all for joining us today and just a moment, we will share our prepared remarks, and then open it up for Q&A joining me on the call today, we have our 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.
The end of it.
A quick reminder, that we will make forward looking statements today, which are based on our current expectation of future performance and our actual results could differ substantially from these expectations also 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 these non-GAAP results in our remarks.
See our press release from this morning, and our IR website for more information or cautionary statements and our non-GAAP reconciliation from our detail, but that Bob I'll turn it over to you.
Alright, well. Thank you Ryan Hello, everybody. Thank you for joining us today.
Well the first quarter was a tale of two really different environments as expected we incurred losses in January and February due to the negative impacts of the omicron variant, we anticipated travel demand would rebound in March and we were pleasantly surprised at how quickly it bounce back and the extent to which demand and bookings surged, while we reported a Q1 loss.
Ross, we were solidly profitable in March actually not too far off of March 2019, as profit and while modest I'm very pleased that first quarter unit revenues increased as compared to 2019 that was the first quarterly increase since the onset of the pandemic, so but for the omicron impact we would estimate that we wouldn't have been prop.
The poll for the first quarter.
In the first quarter total operating revenues were 91% restored in 2019 levels. Despite Q1 manage business revenues being only 45% restored.
Looking forward, we are very encouraged with the bookings and revenue trends. We are experiencing for Q2, which indicate operating revenues will be fully restored to quarterly record levels on stronger leisure and business demand.
Our revenue initiatives continue to roll out and Andrew will cover our new fare product in more detail and we look forward to launching that this quarter and getting another one of our revenue initiatives in place and producing value.
We will have another meaningful fuel hedge gain in Q2.
And we remain well protected with our fuel hedge portfolio in the second half of this year, despite higher than normal unit cost inflation and productivity drags from under utilizing our assets, we expect to be solidly profitable Q2 through Q4 and for the full year 2022.
We are currently forecasting a healthy profit for Q2 was solid operating margins now of course. This is based on our current outlook and barring any unforeseen material events such as another wave that would impact our temporarily slow our progress and we see no signs of that at this point and it just goes to show the power of our business model and how.
Well our people are managing through a very difficult environment.
Our March results and our current outlook for Q2 represent tremendous progress on our recovery.
Even if we arent fully expect it to be optimized with our network fully restored until the end of next year I'm, just really really proud of our people for their progress to date, we've come a long way I'm, just very thankful for their constant resilience.
A key to our recovering as our continued hiring progress and we now plan to hire and add over 10000, new employees to the southwest family This year and Thats net of expected attrition.
By the end of this month, we will have welcomed roughly 6500, new employees in 2022, and Thats 5000 net of attrition now I'm, just really pleased with our hiring progress we continue to work through lower available staffing and training constraints to keep pace with rebounding travel demand and we recently reduced our summer flight <unk>.
<unk> to match, our capacity guidance as we prioritize our operational reliability I.
I believe we have already accounted for the impact of staffing constraints and our full year 2022 guidance on capacity of down 4% versus 2019, but of course, we need to trim more capacity, we certainly can but I'm cautiously optimistic and we can get to a good balance of head count to operate our planned flight schedules for the remainder of the year.
While setting ourselves up for resuming more material growth in 2023.
You've heard me mention these things before but we remain focused on a few key priorities for this year.
First getting properly staffed and focusing on our people.
Making progress toward our historic operational reliability and efficiency.
Third, providing our legendary hospitality and fourth returning to consistent profitability.
It takes all 59000 employees working together to execute on these focus areas and deliver a low cost high quality product with low fares and great customer service. That's what our people are good at and they've been good at that for 50 years and they just do an incredible job.
And it's a tough environment and they've been through a lot I'm, so grateful for them and what they do each and every day.
Together were making tremendous progress to put this pandemic behind us and while coming out of the pandemic has proven to be messy.
As it was coming into the pandemic I can assure you that we're very hard at work here at southwest Airlines to make this company, even stronger and I remain very optimistic about our future and with that I will turn it over to Tammy.
Thank you, Bob and Hello, everyone.
I'd also like to thank our employees for their resilience and yet another challenging quarter impacted by the pandemic and weather disruptions.
The rapid rise of the Omnicom variant significantly impacted our business in January and February resulting in a first quarter net loss of $191 million, excluding special items.
However, with a much different story as we experienced a rebound in demand and surge in bookings during the month.
Arriving March operating revenue higher in March 2019.
That was our first monthly revenue increase relative to expected 2019 levels since the pandemic began.
Last month cash sales also represented a monthly record bookings surged for spring and summer travel.
And we posted healthy double digit margins for the month of March.
The significant rise in market jet fuel prices.
Needless to say I am excited about the strong revenue trends in second quarter, and Andrew will cover in more detail in a minute.
Taking a look at non fuel cost we are tracking in line with our 2022 cost plan with first quarter CASM ex coming in at the favorable end of our previous guidance range and up 17, 9% compared with first quarter 2019.
Thankfully favorable airport settlements better operational performance in March and lower than expected incentive pay created some period costs relief and first quarter relative to our guidance.
As we look ahead, we continue to experience unit cost pressure from operating at suboptimal productivity level as well as higher inflationary cost pressure, primarily in salaries wages and benefits.
We are leaving our full year CASM ex guidance unchanged at 12% to 16% versus 2019, as we are still not able to fully utilize our assets are achieve optimal productivity levels due primarily to staffing challenges.
That said, we do expect second half 2022, CASM ex growth rate relative to 2019 to ease sequentially from first half 2022.
Our second quarter, we currently estimate CASM ex to increase in the range of 14% to 18% when compared with 2019 level.
Roughly half of that increase is a result of continued inflationary pressures in both labor and airport rate, which now include labor rate increases across all of our grid as best as we can estimate at this point.
Given the current labor market and our current outlook for profitability this year.
We.
We estimate the incremental labor accruals to be roughly a point to castle Matt.
The remaining half of the CASM ex increase is attributable to headwinds from operating at suboptimal capacity and productivity level.
Our outlook for second quarter capacity remains down approximately 7% from 2019 level and while our moderated capacity plans are designed to provide operational relief given our current available staffing challenges. It continues to create unit cost headwind.
Particularly with a shorter stage link as we.
We add back higher frequency business routes, which Andrew will speak to shortly.
Turning to fuel market prices have been on the rise and highly volatile given the current geopolitical climate.
Our fuel hedge is providing excellent protection against rising energy prices and significantly offset the market price increase and jet fuel and first quarter 2022.
We are at 63% hedged for second quarter and estimate our second quarter fuel price to be in the $3 five to $3 15 per gallon range, which is roughly 80% higher than our first quarter fuel price.
That includes an estimated 61 cents of hedging gang, which represents cost savings of more than $290 million in second quarter alone.
Of course.
This is a snapshot of our fuel guidance at a point in time and market oil prices and heating cracks have been moving pretty materially on a daily basis.
By the way.
Energy environment is exactly why we hedge fuel.
Even though the hedging gains in second quarter won't fully offset the rise in market fuel costs, our hedging portfolio is providing meaningful cost mitigation.
The fair market value of our fuel hedge in 2022 is estimated at roughly $8 billion.
Turning to our fleet, we recently adjusted our order book with Boeing to replace the majority of our Dash seven Max firm orders with Dash eight Max firm orders in the short term along with other adjustments, which we outlined in our earnings release. This morning.
I won't reiterate all the details but will note a few key highlights.
Our current order book now reflect 21 dash seven firm orders.
81 dash eight firm orders.
And 12 remaining macs options in 2022.
If you recall from our previous order book as of the end of last year, we had no dash eight firm orders in 2022.
While we are eager to bring the dash seven aircraft into our fleet and remain confident in the aircraft. We simply wanted to go ahead and rebounds, our 2022 order book to provide more near term certainty given the ongoing certification process for the dash seven.
We are grateful for the flexibility we have in our order book to ship between seven and Dash eight and our plans. This year to take 114 aircraft delivery and retired 28 dash seven hundreds.
<unk> unchanged.
While our Capex guidance assumes we will exercise the remaining 12 options. This year, we maintain flexibility to evaluate and that intention as decision points arrive each month.
And given that the certification for the Dash seven has been going on for some time, we contemplated the possibility of taking some dash eights this year and to our 2022 Capex estimate.
Therefore, our capex guidance of approximately 5 billion remains unchanged.
As I have mentioned before we don't expect to incur a CASM ex penalty from holding onto extra aircrafts versus accelerating debt 700 retirements, while our capacity remains temporarily moderated.
So from an economic standpoint, we may not decide to accelerate further aircraft retirements. This year, despite carrying more aircraft in our fleet the needed for current 2022 capacity plan.
We are also mindful of aircrafts and growth needs for 2023, as we plan to continue restoring the network.
On our balance sheet, we ended the quarter with cash and short term investments of $15 7 billion.
Our leverage is at a very manageable, 56% and we continue to pay down and retire debt as opportunities arise as we have done with a portion of our convertible debt.
We continue to be the only U S airline with an investment grade rating by all three rating agencies, which remains one of our key competitive advantages.
In closing our second quarter financial trends are strong.
Barring any unforeseen events or trend changes, we expect solid second quarter profit and operating margin.
Our financial position and ample liquidity allows us to continue investing for the future. So that we are ready to resume growth as soon as we are first able to restore our network and get staffing to desired level.
And we intend to grow we are a growth airline we have great momentum and we are excited about the ample opportunities in front of us.
With that I will turn it over to Andrew.
Thank you Tammy I'll provide some additional color on our revenue trends and outlook and pointing to our earnings release for more detail.
Looking first at Q1 January and February passenger revenues incurred two main negative impacts.
First $380 million due to softness in bookings and elevated passenger cancellations attributable to the omicron variant.
And second on <unk>.
Additional $50 million in January due to flight cancellations related to available staffing challenges, which were made worse by winter weather.
However, we experienced a very different dynamic in March as we saw a surge in leisure travel bookings along with a significant pickup in close in demand there.
The improvement in March exceeded our original expectations for both leisure and business demand.
March managed business revenues were down 36% versus March 2019, compared to our latest guidance of down 40%.
And put us back on a nice improvement trajectory from pre omicron performance in December of 2021.
In fact managed business revenues improved to 34 points from January is down 70% to March was down 36%.
We experienced higher managed business passengers.
And most notably March marked the first month since the pandemic began where management business fares surpassed 2019 levels.
Our revenue initiatives performed well during Q1.
Despite the omicron impact.
Benefits from our GDS initiative, given the significant bounce back of business demand in March.
We also had a strong performance from our loyalty program with other revenue up 43% versus Q1, 2019, which was assisted by incremental revenue from a new co brand credit card agreement with Chase.
A nice attribute from a new co brand credit card agreement as a revenue stream is rather insulated or diversified from a passenger revenue impact from Covid wave.
Long as consumer spending remains healthy.
Q1, retail sales spend per cardholder, and overall portfolio size continued to grow versus 2019.
Our new market performance was impacted by the omicron variant to a greater degree than the rest of our network.
While Hawaii growth markets underperformed expectations slightly in March largely driven by the Covid protocols that have since been lifted we're encouraged by the strong demand we saw in March and heading into the summer months for Hawaii.
We continue to adjust our Hawaii offering the best suit, our customers' needs and allocate more of our capacity to business markets.
And this can be seen in the changes beginning in June .
And non Hawaii, new markets, we saw modest outperformance versus expectations due to the sharp uptick in travel demand in March which followed the general trend of the rest of the network.
Rod based improvement across all geographies.
All told for Q1, we came in at the midpoint of our operating revenue guidance of down 9%.
While the omicron impact was higher than anticipated in January and February the improvement in March outperformed our expectations. We're very pleased with our recent revenue trends.
Looking at Q2, the positive momentum continues and were expecting the operating revenues to turn positive versus Q2, 2019 estimated to be up 8% to 12%. Despite.
Despite capacity below 2019 levels.
And managed business revenues yet to fully recover.
As we were already operating at pre pandemic load factors in the low to mid 80% range. Our revenue improvement outlook is primarily due to higher passenger yields both leisure and business.
We expect another solid contribution from our revenue initiatives in particular with GDS as managed business revenues are expected to improve sequentially.
April managed business revenues are expected to be down 30% versus April 2019, and we expect to see sequential improvement in May and June .
We also expect our new fare product rollout this quarter, which we call wanted to get away plus.
Having for fair columns displayed in our website is a natural evolution that is geared toward offering customers.
Attributes they want to choose while not taking anything away.
The general attributes of Wanna get away plus or the introduction of transferable flight credits.
More flexibility with same day confirm changes standby benefits and a higher earn multiple for rapid reward points.
At the same time, our anytime Ferris will gain the express fly by security Lane and priority check in perks, we're available as well as early bird check and benefits.
We believe this will better represent the product offerings that our customers want and are willing to pay for and it has the added benefit of generating incremental revenue for the company.
Given the timing of the rollout, we arent expecting a material benefit in Q2, but we are expecting a solid revenue contribution in the second half 2022.
Lastly, on our revenue initiatives, our revenue management system continues its progressive rollout.
Before I wrap up I want to share some color on our capacity and published flight schedules. We continue to expect our Q2 capacity declined 7% versus Q2 2019.
While this is a two point sequential increase from Q1, we expect a five point sequential decrease in stage length from Q1, as we establish chips in short haul markets and the business travel and in an effort to provide more recoverability to the operation with more frequencies.
We have now adjusted our published flight schedules through Labor day to match flight activity to our 2022 capacity guidance.
In terms of network restoration will be roughly 80% restored by June based on trips and based on our full year capacity guidance of down 4% versus 2019, we expect to be roughly 85% restored by December .
As we have discussed it will take us some time to rebuild the network that we won given current staffing constraints. We will continue to expect to restore the vast majority of our network by the end of 2023.
And with that I will turn it over to Mike.
Well, thank you Andrew and Hello, everyone.
On our last earnings call I walked through the availability of staffing and our challenges that we face due to the omicron Varian and the roughly 5000 employees that became sick in the first three weeks of January .
As a result of that we reinstated and incentive pay program that ran from January <unk> through February eight.
Incentive pay program worked as designed our employees responded very well they picked up extra shifts and helped US cover the flight schedule and those employees out sick.
While the program cost us $127 million and afforded us an opportunity to more quickly stabilize the operation in the first seven days of January our on time performance was 41, 2% from.
From January through mid February that on time performance jumped to 85, 1% that put US number two for on time performance in the industry.
And that was a monumental feat after the start to the year that we had.
What I think is most impressive about our people is that they not only stepped up to cover the extra shifts during what can only be described as an omicron crisis, but they put southwest airlines in the top spot for customer satisfaction in January for the Dod.
Air travel consumer report.
And we remained in the top spot among marketing carriers in February as well.
Our people have been through a lot. These last few years and just to accomplish that in the first two months of this year is just superb and my sincere. Thanks to everyone out there on the frontline working hard for southwest and Theyre, taking great care of our customers.
I am very pleased that our employees and our customers can now make a decision for themselves as to whether or not the one where im ask onboard our aircraft.
No that enforcing mass compliance has been a tough endeavor for our employees for a long time now and they deserve a break.
Science supports the mass mandate expiring so great news on that front.
Relative to early January our operational performance in February and March improved our February flight level stayed relatively low at 3300 flights per day and then they increased to roughly 3400 flights a day in March and as Andrew mentioned travel demand in March surged with load factors in the mid <unk>.
We anticipate it to ramp up in demand, but we did run into a few challenges during march related to weather and ATC delay programs.
In mid March we had winter storm quinlin that impacted many of our mid Atlantic and northeast airports and then we also had line of severe thunder storms that stretched from the Gulf of Mexico and across Florida and that resulted in air traffic management programs operational adjustments and then resulting flight cancellations.
In early April we experienced a technology outage that caused similar issues and it took a couple of days to work through that event.
And we've had a tough time during our regular operations given our center network and some of the unanticipated air traffic control slowdowns. The good news is that we've made some adjustments to our network. Starting this month that we believe will help and I'll speak to them more shortly.
On the staffing front, we continue to aggressively hire and as Bob mentioned, we're now targeting over 10000, new employees. This year net of attrition the.
The majority of this hiring as and the operations group and it's imperative that we are properly staffed.
The goal with the majority of these hires us to cover our published flight schedules and our capacity plans. This year, but also we intend to build some buffer so that we're ready to resume growth in the near future and get ahead of our spring and summer 2023 staffing needs, we're making great progress with hiring.
But we have thousands of employees that are in training and theyre still gaining proficiency. So it just takes time before we're going to have a full complement of frontline employees that are on the job.
Versus either being a new hire and still in training the training pipeline.
So we've made tradeoffs with lower capacity in order to support operational reliability and the combination of this and the continued hiring should help us as we move into the summer.
On behavior trends and hours worked per employee we continue to lag pre pandemic metrics, we're still experiencing higher sick time more employees on inactive status and overall staffing availability challenges.
We've also had some constraints on training throughput, but we believe we have a path to get the sufficient head count in our key operational groups. This year. It remains a work in progress and it's one of our top priorities.
Until then our capacity will remain muted versus the aircraft that we would like to return to service to accelerate the network restoration.
And lastly, Andrew mentioned that we expect our average stage length to decrease by about five points from the first quarter to the second quarter and that should help us with our operational Recoverability in Q2, we're.
We are adding short haul flights in the business oriented markets.
Abides us more options, when we have weather or ATC delays.
We wont snap back to our historical network competence composition overnight.
But I believe that our operational performance, we will continue to improve as we restore the network through the end of next year.
That should provide the foundation to recapture better operating leverage and we're also working on other initiatives to improve overall efficiency and return to our historic levels of productivity and so with that.
Brian I'll turn it back over to you.
Thank you Mike I believe we have analysts queued up for questions and just a reminder to please keep your questions to one and a follow up if needed.
Chad. 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 you're.
Using a speakerphone please pick up the handset before pressing the keys.
To withdraw your question. Please press Star then two.
And our first question will come from Ravi Shanker with Morgan Stanley . Please go ahead.
Thank you good afternoon, everyone. A quick question on the corporate side can you just give us a little more detail on what do we expect the corporate ramp trajectory to be through the rest of the youre into next year and also we are hearing from some corporate accounts that they expect a fair bit of competition.
In the second half of this year going into 2003, when it comes to negotiating.
Kind of just corporate travel agreements just given there.
Kind of coming off this.
This trough and everyone's going to be fighting crystallize. The pie do you have any visibility into that or not thank you.
Hey, Ravi, it's Bob I'll start and then I'll, let Andrew chime in on the more of the specifics I think we while the our managed business recovery is obviously lag leisure I mean leisure is well ahead of 2019 at this point, we've seen a really robust recovery. So I think we.
In March we were down about 36% compared to 2019, but thats up 34 point recovery from January which says they really significant trend. It looks like April is going to be about 30 down 30% I would expect that.
From what we can see the trends continuing to improve through May and then through June and while it's a long ways away.
It's all forecasts I wouldn't put it out of the realm of possibility that we could have managed business.
Revenues fully recover to 2019 levels by the end of this year, but I'll, let Andrew add some details as well Andrew.
Yeah. Thanks, Bob the only thing I'd add to that initial macro point of view is if you kind of go back further than January in kind of April of last year. When corporates really start traveling again, we have a nice strong trend line, but it has some ups and down with Covid waves and so now that we're kind of out of omicron and seen a sharp come back it's still on.
Same trajectory, which leads one to believe that it will get to what Bob said, So we have pretty good confidence in this in this growth because it's grown and rebound strongly through at least two quarters away. So far so that's good news in regard to corporate contracts.
Become stale because there wasn't really a lot to renegotiate during the pandemic. So we fully expect there'll be kind of a big season of renewal of contracts in the fall as you mentioned and given that during the period from pre pandemic and now we've greatly transformed our offering and managed business through both the GDS, we've talked about but also ramping up our southwest.
Business team with tools for TMC, and <unk> as well as a more account managers, we think that kind of broad based renewal is actually beneficial for us in our play for a bigger share of this pie. So we're encouraged by the renewal season coming up this fall.
Very helpful. Thank you.
And our next question will be from Duane <unk> with Evercore ISI. Please go ahead.
Hey, thanks for the time.
Maybe one for Andrew sorry to stay with you just regarding the strong.
The implied yield improvement in <unk>, if we assume a stable macro backdrop, so stable economy stable fuel.
How do you think about the progression of yields for the balance of the year I'm not asking for explicit guidance or anything like that but.
If the economy does not change in fuel does not change is there anything you're thinking about which would cause yields to change seasonality or otherwise.
We did the economy printout today wasn't positive ones. So I don't know how long we can say the economy doesn't change.
Got it.
Consumer spending was still strong and the underlying details of that so I think the broader picture, though is that.
Demand for air travel, especially for leisure is above 2019 levels as well.
Bob mentioned, however supply is not and we don't see a pathway yet for supply to get back 2019 levels until much later this year. So a backdrop of demand exceeds supply is what you give broad base.
Price increases that we've seen mostly from the lack of discount fares versus kind of fare structure has been increased so I think thats a tailwind we have going on now the wildcard is the economy and what that does over the over the near term certainly there are headwinds with the fed increases and such like that but the underlying consumer spending seems to be road.
But so I feel like we have pretty good confidence in the kind of continued demand outpaces supply at least for our guidance range does that answer your question.
That's helpful. Yeah, I Couldnt get you to completely.
No change on macro, but I think thats helpful color.
Hey, just as a follow up.
Is there any way to think about yields on this 2019 baseline on a on a same store basis, I mean, I know the network looks.
Very different than it did back then and you alluded to that.
But how much of this RASM expansion is the result of not flying lower marginal RASM routes because of your constraints right now and thanks for taking the questions.
Well, it's hard to generalize because it.
We have the network is different and you have demand being different of leisure and business being separated by so much and I did mentioned that business fares are up.
Versus 2019, so I think you can see broad based.
Demand exceeds supply is the driver regardless of the root structure. So now youll still have variations in your in your route by route.
I think it's still a broad based demand strength in our broad based supply insufficiency is what's behind all of this getting to kind of.
A little more detailed I think doesn't really show you any different trends in that kind of a broad based trend I talked about.
Thank you.
Duane I would just add the same thing you got to get this setup in the second quarter here again, it's all a forecast where you have.
Overall operating revenue performance up 8% to 12% on capacity down seven.
A significant amount of strength and that's still on the backs of your managed business being down.
I talked about in April sort of in the 30% range.
The other piece of this too is as we as we restore our network there is.
We've got 125 aircrafts that we need to put into restoring the network. This year and next year that all comes on at.
Lower than normal risk in terms of the typical.
Yield drags you might see.
As you add.
New cities are new routes because these are routes that we've had before and they are connecting cities that we have a presence in so I think.
Good.
They come on without those penalties at the same time again, if the trends hold you're restoring.
Business.
At a faster rate, which also helps on the yield side. So.
Now who knows what's going to happen in the macro economy and there's a lot of there's a lot of different things that can occur out there with the fed moves and the potential for recession I think would helpful. There is that despite all of that consumer savings is still more than double what it was coming into the pandemic. So theres a lot of consumer strength out there in terms of.
<unk>.
What they've saved and what can be spent.
Anyway, hopefully that helps a bit.
It does I appreciate I appreciate your time.
Thank you and our next question will be from Brandon Glinski from Barclays. Please go ahead.
Hey, good afternoon, everyone and thank you for taking my question.
Maybe this one for Bob or Mike, but.
Can you guys just help us understand where the the constraints are right now and operating more capacity because.
I hear you that you need to restore the network to prepay.
Pre pandemic levels, but your stage length is only down maybe 2% here.
Your FTE it looked like they are almost back to 2019 levels now maybe with a lot more new folks that need to be trained up but is this really a pilot issue.
Having trouble filling training classes can you speak to some of the constraints and what it's going to take to get back to where you want to be yet.
Yes, Brendan let me take a shot.
Yes, Mike can add a lot of detail there.
We are hiring progress.
<unk> restarted in the fall has just been tremendous we've hired thousands of folks. We're now projecting that we will hire over 10000. This year. Obviously there is some attrition in there as well, but I'm just really proud of our.
Our people department in our hiring teams for making that happen from literally a dead start.
Last fall if you look at that in aggregate we are still.
Today below our total FTE head count in 2019, so we Havent 2019, yet it's just one basis point.
The other is as you think about just.
All the folks that we've hired overall theyre not all working our working proficiently yet so we've hired.
The 8000.
In that time period, but <unk> hundred and typical month right now they are in training. So theyre not out there on the frontline theyre not working so they are in training. So they don't really add to our ability to fly and add capacity. If you look at the remainder we have something on the order of over 15% of our entire workforce that is new.
Since the fall so they are out there working but you know what it's like to have a new job. They are just not proficient yet they are not efficient there are still learning their positions. So.
That comes in.
As you think about our ability to restore capacity now when you get to the where are you most constrained definitely its pilots and to some extent as our flight instructors to train our pilots. We had several thousand pilots go out on a long term leaves with Covid. We had another 640 I think.
Take early retirement job one was to get everybody that was out on leave back trained in flying and we just got that completed liberally in February of this year and then job two is to replace the pilots that took early retirement and.
Just over half the way through that would be two thirds. So we havent crossed that back up yet as well.
So I would tell you that yes.
Constraint right now is on the pilot side, but my fleet, Yes. Please edwin.
Yes.
Brandon I think.
Most of the other work groups that we hired two it really is just a one step process. We go out we find the people we bring them in we interview for the pilots. It really is for US. It's a two step process step number one is making sure that we have slide and structures in place that can so we can get to.
Two our maximum capacity of.
Flight training and so that's where we're focused at this point in time is making sure that the slots that we have for training are focused on slide and structure. So we can have we can get up to maximum capacity in terms of our hiring towards the end of this year and into next year. So that's step number one.
And then in terms of access to pilots.
We still have we're an airline that pilot to come through we have a long history of success here.
And so we were able to go fill up our classes.
And have access to the pilots at least certainly here in the next year or two.
Thank you.
The next question will be from Helane Becker from Cowen. Please go ahead.
Thanks, very much operator, hi, everybody and thank you very much for your time just two questions. The first question is on.
On the crew.
Our crew members, who worked extra hours are you concerned that as the year goes on especially at the end for the peak there won't be enough crew hours.
For them to fly.
The busy year and Susan.
Yes Helane.
Are you talking about the pilots running up against their block hour limits for the year.
Yes.
Yes.
I don't think that were at risk of that at all we've got our our schedule of adjusted for the capacity that we have we will see more pilots coming online in the second half of the year.
And so I don't think we will have an issue with that.
Okay. That's very helpful. Thank you and then maybe tell me one for you since you've been so quiet during this Q&A.
On cash and liquidity how are you thinking about.
Bringing cash down to whatever your new minimum liquidity or cash levels.
Going forward.
Yeah. Thanks for the question Helane.
Yes.
Obviously, our liquidity is much higher than where it has been historically and if we have learned anything.
Pandemic recovery.
Can be choppy.
But we are making really great progress.
Hi.
As is evident in the commentary that we shared with you on our second quarter outlook.
So, we're making really great.
Regress there.
And when you combine that with our fuel hedge.
Protection.
Sure.
I'm very very encouraged with where we're headed there.
So all of that.
All that to say is I think we're really well.
<unk> so.
We want to get comfortably passed the pandemic, obviously, we like to have plenty of cash reserve.
You invest in the business and we share it we've shared all of that with you.
But we do want to work down our cash level.
Over time I shared with you in the past that kind of.
Right now we have an agreement to be roughly call it $10 billion.
Cash.
Now going forward.
We believe we can continue to bring that down now can we get back to historical.
Can we get back to historical levels, which were probably in that call. It $2 billion to $3 billion range, it may need to be higher than that.
So we're going to work our way through that obviously first order of business is to get back to solid <unk>.
Profitability. So looking good there and we want to invest in the business and then obviously, we want to get back.
Two.
Shareholder returns.
And we certainly have a desire to reinstate our dividend.
And as we go here as always we will consider share repurchases.
Still appropriate and obviously that will be based on free cash flow.
In just the profitability level so.
Kind of a long winded answer.
But clearly we want to get back on track to what we were delivering pre pandemic and that obviously starts with <unk>.
Adequate returns on capital.
And that starts with profit so if we're making really good progress here and we want to work our way back to those pre pandemic levels.
Thank you.
Thank you and the next question will be from Savi <unk> with Raymond James. Please go ahead.
Hi, Thank you good afternoon.
Question on the stage length.
You mentioned kind of five points.
Traction here in this quarter and I would assume there's a lot of those other markets that you are adding our shortfall as well that that might continue to contract any color you can give us over the next few quarters on how that will trend or was there something kind of unique about the network restoration. This quarter that had a bigger jump than you expect going forward.
Yes Avi.
Good to talk to you all give a start and then Andrew obviously weigh in from a network perspective, but.
As we.
As we redesigned the network year to deal with the pandemic and it was obvious that leisure demand was going to come back faster than business.
<unk> oriented ourselves in that direction. So.
We flew longer we had differences at places like intra California.
And now that business demand is coming back you want to you want the network business is positioned to take advantage of that so really it's simply adding back more short haul.
To really build begin to build a network that is aligned around the business demand that we anticipate the good thing is in addition to meeting the business demand.
Additional depth in the network also helps us with our Recoverability for our customers. So it helps us with network depth and then when we have our regular operations.
It's extremely helpful.
Andrew can talk to sort of thinking forward sequentially does that continue but it is a big big shifts a five point change quarter over quarter and our stage length is significant.
Didn't ask this but it is a piece of our.
It's a piece of our.
Cost story here in the second quarter.
With costs up your CASM X projection.
14% to 18 sort of half of that is.
Labor rates airport, those kinds of things, but a typical inflation the other half.
As sort of inefficiency in the system plus the drag caused by this increase in this decrease in stage length from.
Q1 to Q2, as having a material impact as well, but Andrew if you want to just add some color on just the.
And then where we are going forward in terms of stage.
Yes, certainly.
If you kind of breakdown there are network in the short medium and long hauls.
What's really going on here is we are adding back lots of short haul and even more medium haul versus 2019 in order to kind of get restore network. It also happens to be kind of business oriented.
As we see business demand recovering and it also as Mike mentioned helps the network all things being equal for Recoverability.
Really its a case of what's missing and Thats. The long hauls that will probably be the last to be restored because.
Although it would be attractive to customers and they do well financially.
They don't add as much to kind of network resiliency or business travel recovery and so we kind of prioritize those for them and so youll see stage length for a period of time.
Be down as a result of this and then towards the end of restoration you should expect it to start to come back up a little bit as those long hauls get restored.
Okay. That's helpful is there kind of a general on that just the stage length level that you think youll get back to and it is fully restored.
Okay.
Yes, I think as you get.
<unk> be largely restored by the end of next year and then we get towards into next year success would be having a lot of those network metrics look very very similar to just before the pandemic and so definitely want to be a step for we now have these new things we added during the pandemic. The overall enhance the attractiveness of the network with a composition of shortly.
Even long and the kind of.
What's the point to point, where it's connecting all of that goes back to the network, we loved before the pandemic.
And can I ask a quick follow up on the on the pilot responses earlier I was just curious.
In the opening remarks, you mentioned setting up for more material growth in 2023, just curious like how because it seems like again for southwest at hiring is not the issue clearly an attractive destination, but.
Training class sizes, and that bottleneck seems to be on the training side. So when you talk about kind of material growth next year I mean are you.
Are you expecting your training class sizes to get bigger or like what's going to change that helps you get back to growth next year, especially on the pilot side.
Well, we've got we've got a 26 bay.
Training facility out there currently we have 23 of those base filled we're going to have three additional simulators here coming on.
<unk>.
Later, this year and there'll be ready and fully operational for next year. So we have that capacity growth there.
And then as I said.
If we can get our instructor level up to our targeted levels. We will have plenty of capacity in terms of our training to produce.
More pilots next year.
Even balancing out our recurrent training with a new higher training and the upgrade training.
That's helpful. Thank you.
Thank you and the next question will be from Myles Walton from UBS. Please go ahead.
Good afternoon.
I don't know who has four but I'll pose it anyway, you had really good growth in ATR, maybe just 10% below <unk> 19 levels, but the big three at 50% to 100%.
Higher ATM growth in the first quarter this year versus 2019, and I guess my theory is that it's because of the policy change on change fees, but curious if you have a perspective on that relative performance.
No.
Really nothing to do with any policy change on change fees at all because we.
Have not really changed that.
I meant their change fees changing.
Yes so.
So no I really.
<unk> been sharing the demand environment is just obviously really strong we had a surge in.
And bookings.
<unk>.
Here in March so just really solid robust demand.
And we're seeing that as we've already shared on both the leaders shop side as well as the.
Corporate side, so I would attribute that just more into strong bookings.
Okay. Okay, yes, it was really getting at the delta between their outperformance of your inline performance, but I'll take it up.
And just a clarification on the 10000 hiring versus the 8000 previously can you just add color to that as well as if there's a difference in composition.
Versus the January comments.
Yes, no I think it's just.
If you look at our ability to train a training capacity that has come up just here a little bit and so really that's the difference there is no other significant.
Change, we want is going to take into 2023 to restore our network.
Deep into 2023 and to fly all of our aircraft and so the sooner we can get there the better and so we've.
As I mentioned before I'm, just really proud of our hiring folks because we went from a dead start to hiring at these incredible sort of 500, a month kind of levels here in six months and so really it's just a.
A boost in our ability to.
Higher versus we have somehow changed our target hiring.
Okay. Thank you.
Youre welcome.
Okay.
The next question is from Catherine O'brien from Goldman Sachs. Please go ahead.
Hey, everyone. Thanks, so much for the time.
Maybe just staying on the labor front.
Labor availability than a major theme this quarter. It seems like you guys got ahead of the curve realigning your outlook for this year, so asking a longer term one when we get beyond 2023, and there will be some lumpiness with changes to this year, but beyond 2023 is your five year guidance for mid single digit.
Capacity growth and low single digit unit cost still doable.
In your view based on what you can see for your own hiring pipeline and then what you are hearing from airports in your third party vendors.
Yes, I would say that.
There's a lot of choppiness out there. So we have you.
Got it.
Unknowns in the workforce, who is going to return what's driving some of the folks who are out of the workforce you have inflation concerns you have.
You've got fed policy you have this overhang of a potential recession. So theres a lot of things are going to drive the macro economy, which obviously drives the workforce things like that and we're not in control of that and the projections are a little bit all over the map at this point I would just tell you that.
While you do have to work harder.
We have not had an issue.
Hiring quality I mean really good folks I spend a lot of time with our new hires.
I am proud to bring them into southwest airlines, because they are exactly the kind of people that we want here I think we're going to have to continue to work hard.
And adapt our hiring we we've all heard of.
Speed up the processes, we've had to use channels and techniques that we did before like social media. We've had to do instant interview instant offer all of that but I think beyond that I don't.
I don't see as you look beyond 'twenty two 'twenty three.
That somehow the the the labor market becomes a.
Our constraint to what we want to we want to do what we want to grow job number one is used all of our aircraft.
Fully restore our network and then beyond that we've got aircraft coming we have lots and lots of opportunities yourselves over the 18 cities. We have a lot of opportunities in front of us and we intend to take advantage of those.
Yeah, Bob the only thing I would add to that is just in terms of our five year targets.
I agree I do think we were out ahead.
We were certainly expecting inflationary.
Inflationary pressures this year and that certainly playing out here as we go.
But I I think we all have confidence in our plan and some nothing that we're sharing with you today would change any of the five year targets that we shared with you back at Investor Day.
Okay. That's great and then maybe just for my next one.
You already walked through how youre moving around the Max seven and Max does seats. This year, just given the status of the seven.
I guess, just like what makes you comfortable with taking more of that larger variant closer in.
Demand uptick and then what's your willingness to keep taking shape.
Closer in just pending the dash seven certification.
Maybe just along with that are there any moving pieces, we should think about on Capex here as you move to larger gauge or given that this is more of like a Boeing FAA issue to keep your dash seven pricing and maybe even get some like reiteration just given the changes to your order book, sorry, it's a bit of a long run but thank you so much.
I think I followed.
You know what youre trying to ask there, but just in terms of the overall mix of aircrafts, we really do have a lot of flexibility with the network of <unk>.
<unk> been sharing here today.
We're hard at work to restore.
Our network and that really does call for a mix of aircraft. So.
<unk>.
We feel really good about taking the Max rate.
Yes, as we shared today, we've firmed up 81 of those for this year.
So we're just we'll just continue to monitor that as we go and I don't really see any issues even into next year from a network perspective.
So we will continue to work.
With Boeing to firm up.
Whether or not Theyre, Max seven Air Max day, but right now we are delighted with our order book.
Yes.
Certainly very cost position so.
No very pleased and don't really we have we have a lot of optionality and I think we can manage that really well here as we restore our network and regain growth.
Catherine the way I've just thought about it is just pretty simply as we had two big objectives with the fleet, we want to modernize the fleet and that we need more we need more shells to restore the network.
And at the end of the day I think we're comfortable anywhere between the ace in the Sevens in a 60 to 40 split one way or the other.
It might be a little choppy here as Boeing gets the Max seven certified but as you planned that out over the next couple of years, we're going to be in that range and we don't want to give up a day.
<unk> slots in the near term because we because of the modernization and the restoration are important to us.
Totally makes sense. Thanks, so much for your time.
The next question is from Mike Lindenberg from Deutsche Bank. Please go ahead.
Yes.
Good afternoon, everyone quick one here for Andrew can you just walk through some of the considerations what drove sort of your thinking in expanding the Hawaiian Inter island operation and as a consequence of that are you going to have to establish either a pilot and flight attendant domicile there.
I'll start with the last part first no usually we have much larger operations before we start to sell.
Steps domiciled.
Secondly, other referred to them.
Remarks, we kind of restructured Hawaii, both the summer and the fall.
Part of that was reallocated more capacity of the business market. This business.
Robust return.
And then for.
Kind of customer preference, we've done some changes to our mainland to Hawaii offline, which is mostly about how we take the connectivity we have because it's mostly point to point with some connections on top of it restructured where we'd like to have the sense that take place on the mainland.
And then for the ones that places, where we want to have gateways.
Mostly kind of origin, then we will have those connections happen the neighbor islands in Hawaii. So as a consequence of that we have less flying from the mainland to Hawaii, and then more flying between the islands.
Also as a secondary benefit of having some time of day appeal, because our previous frequencies did not allow for.
Kind of reliable day trips for business travelers in the island. So if you think about your business relevant to wahoo, where the largest population youre going to Maui, there's very nice hotels in Maui, but theres not a business hotel. So you have to get back that night and so the service pattern has to allow for the early morning departures in the evening returns so the increased frequency count.
Also appeal to them. So it achieved multiple objectives that support the broader restructuring.
A reduction of about 20% in mainland Wi flying.
Part of that Okay. That's super helpful. And then just quick one to Bob or Mike on the 10th out.
Up from the 8000, Bob as I recall, a few months back you sort of hinted that it's not just 8000. This year. It feels like it's probably going to be 8000 for several years. So the way we think about it is it is it 10000 this year and Youre getting ahead of next year and therefore next year you may be looking to only hire 6000 on a net basis.
And what in round numbers, how many pilots this year and next year I know you said that youre going to replace 640.
Pilots, who had early retired but.
I believe your natural attrition is probably several hundred pilots per year. So what are we looking at for this year in pilots and maybe even 23. Thank you.
Oh, you bet, there's a lot in that question, but I think the.
Yes.
The there are really two things happening in hiring number one is to catch.
Just up to where we need to be to our current fleet and.
And network restoration as I mentioned before we are still below just in total were below.
Our 2019, our head count still and we and as also mentioned we have a large number of the new our new employees. So they count in that number that they are either still in training.
Or are they are gaining proficiency so in my mind.
It's six months nine months, a year before theyre fully proficient as a as a longer term.
Our.
Employee.
Obviously, we've got to catch up number two we wanted to get a bit ahead here because we've got a lot. We've got under 14 aircraft coming in this year. We have 90, and then net obviously some retirements next year.
Take the 125 to restore the network. So it's taking a lot to get back to where we've got our network restored.
So there's a bit of that 10000, there as part of the 10000, that's catching up and I think there is a part of that 10000 and thats trying to get a bit of Ed at the end of the day the golar, but one has to fly over aircrafts restore our network to have a reliable operation and then as we've talked about.
End of 2023 get back to our historic operational reliability and get back to our historic productivity, which we defined as regain in 2018.
Our productivity and efficiency.
How that translates into an exact number.
Four.
Hiring for 2023, I can't really tell you just because it depended on attrition and a whole number of things.
My guess just.
Because of the aircraft number of deliveries that.
Retirements are falling from 2022% to 2023, it may be reasonable to expect in 2023 hiring overall is a bit lower.
But I think we just have to see again I come back to the number one goal is use all of our assets by all of our aircraft and return by the end of 2023 to our historic efficiency and reliability on the pilot front and Mike can give you a lot more exact number then.
I can what I've got in my head is the pilot hiring in <unk>.
2022 year is roughly 200 or so Mike so yes.
If you don't mind, just a little more detail in pilot.
Yes.
Just a couple of things in terms of the hiring just the way I think about that I'd always rather go faster than slower.
When we get behind on staffing it just takes a longer time to catch up with that and then if we can have staffing with some cushion. It gives us a better cost profile with less premium pay gives us a better operational recovery profile.
If you find yourself.
And in Overstaff situation, you can just dial back the.
The hiring and you can solve that pretty quickly so just as a frame of reference.
The faster that we can hiring get up to speed for us the better in terms of the pilot hiring Bob is right we've got somewhere.
Just north of a 1000 pilots here this year and then if we can get up to full capacity we can produce.
Close to 2300 pilots next year, if we needed to Wow.
Thanks for the detail.
Numbers.
Thank you, Mike and gentlemen, we have time for one more question and that question will come from Sheila <unk>.
With Jefferies. Please go ahead.
Hi, it's Scott on for Sheila just on the managed corporate down 30% in April is there any way to maybe parse out how much of that is restoration of 2019 managed corporate revenue and how much is coming from taking share with these new revenue initiatives you've put in place.
Andrew do you want to take a shot at that one.
Sure, which I'm going to disappoint you were.
Yes.
As part of our overall.
Revenues shifts, which we gave a benefit of one to $1 5 billion in Investor day, and we're not decomposing. Those individually you can certainly take a look in the art data and see our increasing composition of arc.
And what that means for us getting more and more business travel.
Restoration as a combination of of what we had before in new stuff. The new stuff is really mostly share of wallet. If you will for individual entities. So the people with whom we're doing business with the GDS. We were also doing business through our direct connect or southwest business Swab is application before.
So it's really about giving them multiple ways to purchase from us would have a distribution channel they prefer and we're seeing we're getting more of those accounts business as we've given them this option.
Yes.
I think the thing that is terrific as Investor day in December we laid out.
Our revenue initiative plan.
To add one to $1 5 billion in EBIT in 2023 and half of that here in 2022, and so its all things that attract business. So as Andrew said GDS.
Its new revenue management tools into the new fare product, which I would wanna get away plus it launches here.
Shortly it's our enhancements to our rapid rewards program and our agreement with Chase and all of those things are on track the ones that have been delivered are performing and.
Yes.
So I think the main takeaway is that we laid out a really good plan and we're on track to meet those goals.
Thank you.
Thanks Scott.
Okay, well that wraps up the analyst portion of our call I appreciate everyone listening and thank you for the questions and have a great day.
Okay.
Thank you.
Ladies and gentlemen, we will now begin with our media portion of today's call.
The first introduce MS. Linda Rutherford Executive Vice President of people and communications.
Thank you very much Chad and welcome to our media members.
I think we can go ahead and get started if you would give them the instructions on how to queue up for questions.
Certainly to ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing thank you.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yes.
Yes.
Yes.
Yes.
Yes.
And we will take our first question will come from Mary Schlangen steam with Bloomberg News. Please go ahead.
Hi, Thanks, I just had a couple of quick questions.
Bob Douglas has said previously that they plan to hire 25000 people over three years. So the 2000 that you added today to bring you to 10000 for this year do you think that just brings the 25000 27000, what do you think you still over those three years would end up adding just the 25000.
Yes, Mary I'll be completely honest with you which was.
That's it.
<unk> five is an old number and as we were planning it was a very round number just trying to think through what it takes.
To get our staffing fully back in place.
The other thing to that.
That's a gross number which is we always.
We have attrition in there too so I wouldn't be I don't think that would be quite so granular I do think if you look at the changes this year. So the eight becoming 10.
I feel comfortable with that because a lot of that was dependent at the time that we set the goal of aid we werent quite sure what we could ramp the hiring machine too because again I know I've said this three times, but we went from no hiring machine to trying to hire thousands.
And it was just unclear in terms of how quickly we can rebuild all of those processes and we've done a our folks have done a terrific job and we're actually ahead of pace and so thats really whats raised the eight to 10 in this case.
Okay, and although you talked about how many pilots you hope to hire this year.
A month ago, you actually trimmed your plan for hiring first officers because of the lack of simulator instructor or why the instructors.
Has that number changed like have you had the carve out a few more just despite the the goal that you have a hiring over 1000, if you had to bring that down any.
I would tell you that has moved around.
Our constraints generally have moved around.
Over time, which group in particular is the real constraint.
The constraint right now is.
Its flight instructors, we've made tremendous progress on our on our flight instructors and we're getting very close but thats really.
What is the narrow is constrained.
Versus literally pilots, we have a lot of pilots in the pipeline.
And we could go faster if we had our full complement of fly in structures now we recently.
Have really invested in speeding up that process, so wait probably way much way more than you want to know, but we have retention bonuses we have referral.
Referral bonuses with our with our current employees, we have begun to use our thinking about how to use pilots you have recently retired to be flight instructors. So we really widened out our thinking in terms of how to grow that because every airline is looking for flight instructors right.
Now but.
But no thats our primary constraint right now is flying structures.
Mary.
Sorry.
We do our target. This year is to hire 200 pilots and I think we have a very reasonable path to hit that target just realize though that some of those pilots are going to be coming on here in late October November December there'll still be training and they won't be they won't be out on the frontline flying at that point in time.
Alright, Okay, and how many flight instructors do you need to add to be fully staffed.
We are looking somewhere between.
To hit our planned 35% to 38.
Exceed our plan and a little north of that say 50 to 60.
Okay.
Okay. Thank you very much.
Thank you Mary.
And the next question is from Alison Sider with Wall Street Journal. Please go ahead.
Hi, Thanks, so much.
I guess the one question just curious if youre seeing any issues with fuel supply in any of the airports, where you operate it was a little bit of an issue. Some places last summer and things like the stocks are kind of low in some parts of the country now and just curious if that's something you're anticipating or what youre doing to get ahead of it.
No Allison and timing, please Jamie and I would tell you that those are really spot issues and we're in we're really not seeing those now the issue now of course as price and price differentials across the country and then.
Not just the rise in underlying crude prices, but a titanic rise in the crack spread which is driving up costs as well Luckily, we're well hedged and our hedge portfolio. This year is going to add.
About $1 billion in value in terms of helping manage our fuel costs, but no.
Straight up with your question, we arent experiencing significant issued with fuel supply at this point Amy do you want to add.
You covered it Bob Yes, really no physical issues, so much better position than we are.
And.
Yes, and even.
Relative to just the.
Increase in prices as Bob already said, we've got a wonderful fuel hedge in place. So no I think we're in a much better position there.
Okay. Thanks, and I guess, one other thing I thought was interesting you mentioned about just people being sort of new and it's taking time for people to kind of get ramped up and to be really proficient in their job where are you seeing that kind of manifest that kind of slowing things down on the maintenance front or where is that.
Causing issues.
Alice and mostly that presents itself on the ground.
In the airports.
So think about your new ramp agent Andrew.
And you are out in the different conditions.
Youll operate in during the course of the year just navigating through all the transfer bags navigating used to the speed and the tempo of the airport operation out there all the equipment needed just it just takes several months for you to kind of get up to speed and get comfortable in that environment.
And.
We want to be we want to make sure that we focus.
And then with a lot of supervision and a lot of oversight.
Because it's.
It's a.
Safety is our highest priority out there we want to make sure that with the new hires out there that we've got all of our i's dotted and the t's crossed as we're executing through our procedures.
Okay.
The next question will be from David Koenig from the associated press. Please go ahead.
Okay. Thank you hi, everybody.
Bob Your fares in the first quarter were up quite a bit from a year ago. Although there are only up 5% from 2019, which I suspect is less than CPI, but any concern that consumers, who are seeing inflation and everything they buy because travels.
Question Harry.
Joyce.
Do you have any concern that general inflation and higher fares are going to cut into the strong demand you're seeing.
Yes.
Thanks for the question Theres a lot in there and again I would just say the base I just want to reiterate that we have not been raising fares. So we did have one modest fare increase in the first quarter I think it was $5.
What's really happening is that we've got a normal fare structure and as demand is really strong the lower in fares closeout faster and you move along the bearish structure, but we've not modified our fare structure. The other thing that I would add is as we.
Especially as we add our Wanna get away plus product and as we've as we manage what we call fair gaps between the columns what youre seeing is that in a lot of cases and Andrew can talk to this in most cases the.
The prices are the differentials between Wanna get away in anytime in business select have come down substantially so our fares on the upper end or actually in that fair gap is actually.
Much lower than it has been historically so in that case, those fares are actually more affordable but generally.
As demand is strong and it's extremely strong again.
Our second quarter operating revenues.
Per our forecast could be at all time record, which is just incredible after two years of the pandemic, but as you see that kind of strength.
Since you're going to sell out faster and customers are going to see higher fares. So far we don't see any dampening of demand.
Some of that may be because theres, a lot of discretionary household savings fill of the system.
But so far we've seen no indicator.
Demand has been dampened by this increase in fares Andrew.
Andrew you want to anything.
They wanted to add as an overall our capacity is down versus 2019 for the summer you mentioned, Dave as well as the industry as a collective so we're actually not able to satisfy all the travel demand kind of as is given the capacities are or a lag in 2019.
There will be people, who are not buying that would've bought 2019, but as we restored more capacity, we expect that demand to be there.
Okay, I get that the rise the higher average could be because the lower buckets youre selling out faster than your everybody's capacity is still recovering, but just wondered if there was any concern going forward about inflation nipping. This in the Bud.
Thanks, Thanks, so much.
Thank you.
And the next question is from Kyle Arnold from the Dallas morning News. Please go ahead.
Hey, Thanks for taking my time there.
In some time.
Have you done made any more work or is there anything specific you've done to solve some of the irregular operations problems than others.
A report about a meeting in Florida talk with the FAA about some of the issues happening in there what.
What all you're doing to make sure that some of that either tack or the staffing or the compounding problems don't creep up again this summer.
Yes, let me let me start on there for you Kyle.
We've done a couple of just basic things.
We've reduced our originally published schedules through labor day.
That absolutely is going to give us more.
<unk> and <unk>.
<unk> inclusion in the operation.
Been talking all morning wrong about our aggressive hiring plans, so adding people there.
And then Andrew talked a little bit about us re optimizing our aircraft flow and are designed to reward the shorter haul trips and thats going to help our crew and our operational recovery. So we feel that those are the three big pieces that we're in a much better condition in place that we've been in as we move forward.
We do have as you mentioned, we do have specific and when I say, we I mean, the airline industry has specific impacts with respect to Florida.
Air traffic control and travel through there and it's a combination of problems down there there's more there's more commercial activity theres more GAA activity or more space shuttle laws.
The weather patterns that go through there are complicated and all of that additional traffic.
And then I think that just like everyone else going through with staffing. The FAA is going through staffing challenges as well. So there is a focus and industry focus on that in may the FAA and some of the impacted carriers are going to talk about solutions to that specific aerospace. So I think when you package all of those things.
Together, we are in a much better place going into this summer than we were last summer.
And Joe I, just wanted to add that wanted to just.
Offer some praise for the FAA here because.
Theyre, taking this head on there we've got this meeting in May to develop solutions that are working with carriers are working directly with us and to think about developing solutions because clearly we have more issues. This year.
More weather, yes, Mike mentioned, <unk> got more Spacex and other launches.
The flight activity is back above scheduled flight activity back above 2019 levels, but the other thing is obvious as we put as they put in.
Programs flow control those kinds of things that are designed to manage the issue. They are just not working as effectively as they have historically so I'm just really pleased that the FAA is hitting that one head on and they're working with carriers and working with us directly.
Find solutions that work for everybody Mike mentioned, one other thing I think is really important which is why we've there's been a lot of public focus on scheduled flight activity is above 2019, I think it's really important to point out that general aviation. Our aircraft activity is are above 2019 that takes a piece of the obviously the.
The limited aerospace out so I think understanding that solving that is a significant part of the solution as well.
I appreciate it.
Thank you and our next question is from Dawn Gilbertson from the USA today. Please go ahead.
Hi, good morning.
Speaking of higher ticket prices.
You know offer uplift as an option and I just was noticing it really just popped up right. When I was searching for a flight can you give any color too.
What percentage of bookings new bookings since you've added that people are buying now and came later I know with southwest mutations. It was a notable percentage and secondly, sticking with Douglas mutations are you guys taking that in house.
Thanks.
Andrew I'm going to defer to you.
Okay, Yes, we did.
We do offer uplift, it's a very small percentage of sales that I'm not going to disclose but it's also part of the overall <unk>.
We have made in payment forms whether it's Paypal uplift Apple pay we've just gone on a program in the last three years are getting more and more options for payment method for consumers on the idea that more choices better.
And.
For the Weil.
Vacations and higher ticket values.
Yes that our order values, rather that does that does offer a benefit for consumers that want it.
And then secondly on southwest vacations, we are as we kind of alluded to in an investor day on an approach to kind of restructure redefine how we handle self vacations were sitting up a team and working with industry partners to figure out how we take advantage of the.
The fact that our network is really over indexed to a lot of big leisure destinations where packages are sold and yet we don't really distribute through the traditional channels and so there is an opportunity there for us to do more business and fluid packages consumers and so thats something that were looking at as a future revenue initiative as we kind of look over the horizon in order.
To kind of meet the.
Investor promises we've made about me to RASM performance exceeding CASM, we don't want to leave ourselves of the vagary of kind of the market. So to speak so we need to a pipeline of revenue initiatives allow us to have kind of ex market. If you will.
Benefits that can make sure we keep our top growing. So this is one of the thing thats kind of still the laboratory and we'd expect to rollout over the next couple of years as we make more progress.
Thanks, very much Andrew.
My pleasure.
The next question will be from Laurie <unk> from the Washington Post. Please go ahead.
Hi, Thank you for taking the time to do this.
King of Kyles question I wondered how you might characterize southwest approach. This summer compared to last summer you mentioned youre in a much better place going in.
<unk> was kind of odd because not folks where there was pent up demand, but all folks weren't vaccinated. So can you talk about this summer versus last summer.
Okay.
Yes Laurie.
Generally I just think that the conditions that the U S is operating in is different.
This summer.
Some are coming up as compared to last summer. So last summer, we still had we still had surges of COVID-19 coming.
We still had.
Challenges across the country with schools with day care with parents availability with working from home. There were there were a lot of challenges.
That.
Created a situation where people just couldnt behave in this pandemic world likely to pre pandemic and as a result, when we went into the summer.
We should have had more staffing.
Does the tempo of the operations were slower last summer and we should have had more staffing available or less capacity out there to navigate through that better.
I think some of those conditions are changed as we come into this summer.
As you mentioned Theres more vaccines out there theres more boosters out there.
And we've also got a better balance between.
Staffing and our capacity so we have cushion more cushion available this year to absorb any shocks that come.
Yes, Laurie I think exactly what Mike said, we've got I think number one we got more visibility.
We thought we knew what was happening last summer and then the demand has surged.
April may last minute.
While we've got a big surge this summer we've seen it coming for a lot longer and we've been able to anticipate it to the network is more restored and theres more flight activity, which means you just have a better ability to recover when you have irregular operations and a better ability to move customers and then move employees when we need to.
The big item is COVID-19 balls, and so we had employees.
We're going out on you.
You have close contact you go out you go out for I can't remember, it's five days or 10 days in and so the number of employees out.
And then out at the last minute.
Not predictable you didn't know till today, what's your workforce was going to look like in a lot of ways and so with the change in those policies around Covid. That's gone. So we can we can have a much better predictability around sick leave and the available workforce.
So I'm not saying, it's going to be perfect, but I think our ability to manage this summer and our belief. This summer is going to be much more reliable.
From an operational perspective is much much better year in 'twenty two than it was in 'twenty one.
Great. Thank you welcome.
The next question comes from Ethan Clapper from TPG. Please go ahead.
Hey, Thanks for taking my question, we're hearing from pilots and from members that swap out that there has been a lot of no shows for pilot classes and that recruiting has been especially difficult in that area. So why is that and how can southwest fix that.
Well Ethan.
<unk>.
Generally speaking I would just say southwest airlines as the airline for pilots, we've got a very competitive rates of pay.
Great benefits and retirement program.
And we have a very efficient network with less ground time, and I think that allows our pilots.
Get more flying per day than anybody else.
They generally received more pay than as a result of that so I just I feel like the southwest Airlines as an airline where pilots when it come to we protected their careers. We've built a great retirement programs and great career earnings for them.
So you take that as a as a foundation of it's a great place to work I believe given that we are going to.
Attract absolutely our fair share of pilots out there from all the pools, we may see ebbs and flows from one class.
Another but I think we have all of the tools in the toolkit, we need to attract.
All the pilots that we need.
You've got to be careful generalizing I think.
Overall this has not been an issue you always have no shows.
Hey classes and we've had a good no show rate I mean, good show rates and we've not had a significant portion that didnt show in the class.
So this has not been an issue.
We recently had a class where we had a higher no show rate than we expected and we're trying to understand exactly why that happened, but I wouldn't extrapolate.
<unk>. This one incident too we have a broad based problem. So you've got to be careful about that and then number two there is a ton of work going on it's a competitive market.
The longer you take to make an offer along do you take to get somebody into a slot in our class the more risky run that they could go somewhere else and.
So there's a ton of work going on between our flight Ops Department.
And our people and hiring folks to take those processes down to the absolute minimum and we're all over that but I think main thing is I wouldn't extrapolate.
What happened in our class two that's happening across the board because it has not been.
Thank you.
Yes.
The next question is from Chris Isidore from CNN. Please go ahead.
Alright.
I'm wondering what you can say about where you see the status of the various labor negotiations.
Do you feel any.
It would be advantageous in your hiring efforts. If you were to be able to wrap those up and be able to through let flipped.
Potential new hires know what the labor contract would be if that puts more pressure on the NIM.
Negotiations than maybe in the past years, when you're doing the hiring.
Things that Youre doing now.
Yes.
Yes, Chris So I've been through a lot of labor contract negotiations over the years and I would just say over the 50 years of southwest Airlines I would characterize every contract negotiation as vigorous as contentious as passionate on both sides and what I will tell you is that over.
That 50 year period.
Those kinds of negotiations between the unions and the company have manifested themselves I would say in the most job secure.
The highest productive.
Attractive career earnings.
Opportunity for our people and Thats, what our people really want to have they want to have a company. They can count on through good times and bad and if we can get through the contract negotiations and achieve all of that fab.
Faster.
Absolutely for that but at the end of the day, it's that process that creates that.
The company needs and in our People's needs and we've been very successful doing that over the years and I see no reason that we won't be just a successful going forward.
Okay.
Yeah.
Thank you and we have time for just one more question and that question will come from Robert Silk from travel weekly. Please go ahead.
Yeah, Hi, Thanks for taking my question.
Yeah.
So David Count I actually had a story about this recently, but what are you are you getting many.
Uh huh.
Calls or cancellation requests from individuals who are worried now that there is no mask mandate.
So.
Are you, allowing cancellations in those cases.
Okay.
Robert.
We watch are you watch our customer relations calls and questions every single day I haven't seen a material rise in there.
That at all.
We survey our customers every single day.
And I would just start with the percentage of customers that are comfortable flying just overall is very very high 90%, 90% plus the second is we also survey how comfortable are customers are flying without mass.
That number is also very much in favor of our customers being comfortable.
And just to mention on the mask I am very pleased for our employees and for our customers that they now have a choice.
It's tough to wear the mask all day the data shows that while cases may be rising modestly theyre very low hospitalizations are not rising.
So I'm just pleased that our customers and our employees now have a choice.
We have a we always have had wonderful flexibility and our.
Policies in our fares and so every ticket.
Every ticket that you buy.
Can't be canceled and then those funds held for future use with no change fee.
And obviously, if you buy a refundable fare we will refine that but.
If youre not comfortable flying and we'll either refund that if it's refundable and or will allow you to use that.
Those funds for our future.
Ticket, but generally overall no we're not hearing I'm not hearing anything relative to customers canceling because they are now afraid to fly because of the mass mandate change.
Yes.
Okay. Thanks very much.
Yes.
Thank you Robert.
This concludes our question and answer session I would like to turn the conference back over to MS. Rutherford for any closing remarks.
Chad. Thank you very much and thank you all for joining us and for putting a little bit of extra time. So we can accommodate all the questions for you. This afternoon. If you have any follow up our stellar communications group is standing by at 2147, 94, 847, or you can visit us online at Www Dot SWA media Dot com. Thank you all.
Sure.
Thank you. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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