Southwest: April Corp. Travel Revenue Could Reach 70 Percent Recovery
Similar to other U.S. carriers that noted challenges early in the first quarter, Southwest Airlines incurred losses in January and February, but saw a sharp rebound in travel demand in March, CEO Bob Jordan said Thursday on the company's...
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Similar to other U.S. carriers that noted challenges early in the first quarter, Southwest Airlines incurred losses in January and February, but saw a sharp rebound in travel demand in March, CEO Bob Jordan said Thursday on the company's first-quarter earnings call, and anticipates a surge in business travel demand in the months ahead.
"We were pleasantly surprised at how quickly [overall demand] bounced back, and the extent to which demand and booking surged," Jordan said. "While we reported a Q1 loss, we were solidly profitable in March, actually not too far off of March 2019's profit. And while modest, first-quarter unit revenues increased compared to 2019. That was the first quarterly increase since the onset of the pandemic. But for the [Covid-19] omicron impact, we estimate that we would have been profitable for the first quarter."
Southwest reported a first-quarter net loss of $278 million, which is down from a profit of $116 million in the first quarter of 2021—a figure that includes U.S. government support—and from $387 million in Q1 2019. Operating revenue was about 91 percent restored to 2019 levels for the quarter at $4.7 billion, with passenger revenue at $4.1 billion. Quarterly revenue was up 129 percent from $2.1 billion one year prior, with passenger revenue up 141.5 percent from $1.7 billion in 2021.
Despite the strong overall revenue, first-quarter 2022 managed business revenue was down 55 percent from three years ago, Jordan said.
Still, the company anticipates a business demand resurgence in the coming months. March business revenues were down just 36 percent compared with March 2019—a substantial improvement over January's negative 70 percent figure, Southwest EVP and CCO Andrew Watterson said, adding that March marked the first month since the pandemic began where managed business fares surpassed 2019 levels.
"We saw benefits from our [global distribution system] initiative given the significant bounce-back of business demand in March," Watterson said. "GDS managed business revenues are expected to improve sequentially. April managed business revenues are expected to be down 30 percent versus April 2019, and we expect to see sequential improvement in May and June."
Though "it's all a forecast, I wouldn't put it out of the realm of possibility that we could have managed business revenues fully recovered to 2019 levels by the end of this year," Jordan said.
Southwest anticipates second-quarter capacity to be down 7 percent compared with Q2 2019, and full-year capacity to be down 4 percent versus three years ago. Watterson said the network should be 80 percent restored by June and roughly 85 percent restored by December, with the vast majority of the network restored by the end of 2023.
Southwest is establishing trips in shorter-haul markets aimed in part at business travel—such as growth in California and Hawaii—"in an effort to provide more recoverability to the operation with more frequencies," Watterson added.
As for missing long-haul routes, "those will probably be the last to be restored," Watterson said.
The company also estimates Q2 fuel cost per gallon in the range of $3.05 to $3.15. For the full year, it increased its guidance to a range of $2.75 to $2.85 per gallon versus prior guidance of $2.25 to $2.35.
Because not a lot of corporate contracts were negotiated during the pandemic, Southwest expects there to be a "big season" of contract renewals in the fall. Noting how the company "greatly transformed" its managed business offering through both the GDS agreements and by adding account managers and others to the Southwest business team, "we think that kind of broad-based renewal is actually beneficial for us and our play for a bigger share of this pie," Watterson said.
