Southwest posts loss but is optimistic as air travel picks up

Southwest Airlines on Thursday reported a net loss of $278 million in the first three months of the year but echoed the optimism of other carriers about the months ahead, saying it has already expanded its workforce by 3,300 employees, or about 6 percent, this year.

“While the impact from the omicron variant in January and February disrupted our anticipated profit recovery in first quarter 2022, we returned to strong profitability in March 2022 on surging travel demand,” Bob Jordan, Southwest’s CEO, said in a statement.

Despite high fuel prices and suppressed demand for corporate travel, Jordan said, the airline expects to be “solidly profitable” for the rest of the year.

But the company may find it difficult to return to and exceed 2019 staffing levels. More than 15 percent of Southwest employees have joined the airline since autumn, Jordan said on a call with investors and analysts, noting that many are still learning and are not yet as productive.

Pilot training crucial

The airline plans to add 10,000 employees this year, an increase from a January projection of 8,000. Bringing on and training new pilots is especially crucial, Jordan said.

“Now when you get to ‘Where are you most constrained?,’ definitely it’s pilots,” he said. “And to some extent it’s our flight instructors to train our pilots.”

In February, Southwest finished retraining all of its pilots who took long-term leave during the pandemic, Jordan said. Now, it is trying to replace the hundreds who took buyouts, a process that is between half and two-thirds complete, he said.

The industry struggled with staffing shortages and passenger cancellations caused by the omicron variant in the first two months of the year but reported a substantial turnaround in March. In April, Southwest has continued to see strong sales for leisure travel and improvements in corporate travel, a lucrative part of any airline’s business.

The airline reported taking in $4.7 billion in operating revenues in the first quarter, down nearly 9 percent from the same period in 2019. But Southwest said it expected revenue would be up between 8 percent and 12 percent in the second quarter. The airline also said it expects capacity for the year to be about 4 percent below 2019 levels.

Hedging fuel costs

Like United Airlines, Delta Air Lines and other carriers, Southwest said it expects the price of jet fuel to be higher from April through June than it was in the first three months of the year, rising to just over $3 from $2.30 per gallon. But unlike most other U.S. airlines, Southwest expects to benefit from a strategy of financially hedging against fuel spikes, shaving an estimated 61 cents from the cost in the second quarter. The airline said it expects that practice to save it $1 billion this year.

The airline also plans to introduce its new fare class, Wanna Get Away Plus, in the second quarter.

Southwest’s average fare in the first quarter was $159, up 32 percent from a year ago and 5 percent higher than during the same period in 2019. Fares are likely to rise further, partly because more travelers are booking far in advance, when prices tend to be higher, and because airlines limit the number of seats they sell at the cheapest fares.

“Any time you see strong demand, though, you’re going to see an increase in fares,” Jordan said on CNBC.