Southwest CEO: 'It may be 2022' before sustained profitability

Asia's Tech News Daily

Southwest Airlines (LUV) CEO Gary Kelly said the airline would have seen a handsome profit in the third quarter but the late summer spike in COVID-19 cases led to a loss as passengers stopped booking flights.

“I am very hopeful we are on the right trajectory here but it may be 2022 before we see sustained profitability,” Kelly told Yahoo Finance Live.

Here are the main results from the Q3 report, compared to consensus estimates compiled by Bloomberg:

  • Adjusted pre tax income loss: $135 million vs $141 million estimate

  • Adjusted earnings per share loss: $0.23 vs $0.26 estimate

  • Net income per diluted share: $0.73 vs $0.05 estimate

  • Revenue: $4.7 billion vs $4.64 billion estimate

Southwest posted an adjusted loss of $135 million or $0.23 per share in the third quarter, beating Wall Street estimates. Revenue also came in stronger than expected at $4.7 billion, down 17% compared to the same quarter in 2019.  

“So just moving from second to third quarter and seeing that increase in demand was really, really encouraging. And it’s continuing on here into the fourth quarter, even though we’ve moderated some of our capacity plans in fourth, I’m still expecting a good healthy revenue performance,” Kelly said.

Jet fuel prices have risen 60% year-to-date and Kelly warned that they pose a $100 million cost headwind for Southwest in the fourth quarter. Other airlines have issued the same warning with Delta Air Lines (DAL) and United Airlines (UAL) considering increasing ticket prices.

Kelly said Southwest will continue to be “America’s low fare policeman,” but added, “I can’t really tell you what our future pricing actions might be other than we want to keep our costs low and keep our fares low. We don’t charge bag fees, don’t charge change fees,” 

‘Struggling through this pandemic’

Southwest said leisure and business travel demand continue to improve with renewed momentum in bookings as people plan their holiday travel. The airline is halfway to its goal of hiring 5,000 new employees to meet that demand but Kelly says balancing capacity with staffing poses some challenges. 

“We’re seeing a little bit higher attrition, higher access to leaves a little bit higher absenteeism. And, you know, people are just, they’re still struggling through this pandemic. So we just need to be mindful of that,” Kelly pointed out.

© Provided by Yahoo! Finance

Southwest said it was aggressive with its capacity plans in the third quarter pushing close to pre-pandemic levels. But staffing shortages magnified by bad weather and air traffic slowdowns led to Southwest canceling thousands of flights two weeks ago and upsetting thousands of passengers.

While not part of the Q3 metrics, Southwest said its October operating revenue face two headwinds. A $75 million charge related to customer refunds and “an estimated $40 million negative impact due to the lingering effects of the Delta variant.”

Kelly said things are looking better as holiday travel bookings fall in line with where they were in 2019. “We just have to get out there and win customers over every day,” he said. Newsweek just named Southwest No. 1 for best customer service in the low cost airlines category.

“And when we goof up, we fess up and we apologize and do everything we can to hold on to them and get them to come back,” Kelly said.

Adam Shapiro is co-anchor of Yahoo Finance Live 3pm to 5pm. Follow him on Twitter @Ajshaps

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