Southwest Posts Q4 Loss After December Disruptions

Southwest Airlines executives gave a remorseful fourth-quarter earnings call Thursday, where they again apologized for last month's significant operational disruptions, when it canceled more than 16,700 flights between Dec. 21-31, according to CEO Bob Jordan.

"I want to apologize again to our customers and our employees for the impact the operational disruption had on them and all their holiday plans," Jordan said. "We are intensely focused on reducing the risk of repeating that type of operational event."

Some of the mitigation efforts already put into place include an early indicator dashboard that monitors operational health and signals if the carrier approaches predefined thresholds, Jordan said. It also established supplemental operational staffing that can mobilize to support crew recovery efforts at the first sign of a potential workload backlog. Southwest also has enhanced existing tools for crew members to communicate electronically to crew scheduling during irregular operations. And the carrier is updating and upgrading its crew-recovery tools and system to solve the backlog repair of crew-member schedules, "which was one of the key issues during the disruption," he said.

Southwest also currently plans to spend $1.3 billion of its 2023 operating plan on investments, upgrades and maintenance of its IT systems enterprise-wide. The company during the past five years had invested about $1 billion per year on technology, Jordan said.

Customer refunds and reimbursements "remain a top focus," Jordan said. The carrier has completed more than 80 percent of the reimbursement requests received and expects to have the remainder of those largely completed by next week, said Southwest EVP and chief commercial officer Ryan Green. 

The cost of the operation disruptions resulted in a $620 million negative after-tax impact, said Southwest CFO Tammy Romo. This led to a fourth-quarter net loss of $220 million; full-year net income was $539 million. Prior to the December disruptions, "we were on track to produce a healthy fourth-quarter profit," Jordan said.

Corporate Business 'Strong'

Managed business revenue "continues to be strong," and that held until Dec. 21, Green said. Still, because the end of December is a low-demand period for business travel, "we experienced less of an impact on business travel trends than with leisure," he said. 

Fourth-quarter 2022 managed business revenue was down 20 percent compared with Q4 2019, even though the carrier saw a sequential improvement from October to November. Although it's "early in the booking curve," Southwest expects March 2023 managed business revenue to be roughly restored to March 2019 levels. "Beyond that, we expect that our [global distribution system] and Southwest Business initiatives will provide the opportunity to grow managed business revenue sequentially beyond March," Green said.

Q4, Full-Year Metrics

Southwest reported fourth-quarter 2022 revenue of $6.17 billion, a 7.7 percent increase compared with Q4 2019 and 22.2 percent increase year over year. Despite the flight cancellations at the end of December, the revenue was a record for the quarter, according to the carrier. Passenger revenue for the quarter was $5.54 billion, up 21.6 percent year over year. 

The carrier's 2022 revenue was $23.81 billion, representing a 6.2 percent increase over 2019 and a 50.8 percent gain over 2021. Full-year passenger revenue was $21.41 billion, a 52.2 percent increase over 2021. 

Southwest first-quarter 2023 revenue guidance is up 20 percent to 24 percent year over year, with capacity up about 10 percent for the period. Full-year capacity is now anticipated to be up 16 percent to 17 percent year over year. The company's 2022 capacity decreased 5.6 percent compared with 2019. All planned 2023 capacity additions will go toward restoring the network and adding to existing markets, according to the carrier.

Fourth-quarter fuel cost was $3.18 per gallon; full-year fuel cost was $3.07 per gallon. The carrier anticipates a first-quarter cost of between $3.25 and $3.35 per gallon and a full-year estimate of $2.90 to $3 per gallon. 

 Southwest Q3 2022 earnings