Southwest to Revamp Schedules to Match Shifting Corp. Traffic

As business travel continues to lag leisure demand, Southwest Airlines announced that it will revamp its 2024 flight schedules, executives said during a Thursday earnings call.

"While our network is largely restored at this point, it is not optimized, especially for post-pandemic shifts in business travel," Southwest CEO Bob Jordan said. "Those adjustments to the network will be largely complete by the March 2024 flight schedules."

Though chief commercial officer Ryan Green reported improvements in second-quarter managed business revenue, both year over year and quarter over quarter, Southwest expects to see corporate travel demand remain lower than leisure "for the foreseeable future." 

Travelers from some of Southwest's "largest segments" have reduced the frequency of their business trips from pre-pandemic levels, he said.

"Pre-pandemic, those travelers had a skew of short-haul travel with more frequent trips, and also more midweek travel," Green said. "Our current network is designed assuming those travel patterns would return. Moving forward, there is a revenue opportunity to adjust the network to adapt to the new travel patterns we expect to continue to see from our mix of business and leisure customers."

There will be four "buckets" of network changes, according to chief operating officer Andrew Watterson. The first is a frequency shift from mostly short-haul business-heavy routes to more medium- and long-haul routes with a lower business mix. The second is reduction of flights on Tuesdays and Wednesdays, which are down 7 percent to 10 percent versus Monday, Thursday and Friday, depending on the season, Watterson said. 

Third is the "shoulder of the day." The carrier will be moving "a little bit in" the latest and earliest flights, "which are typically our worse performers," Watterson added. The fourth adjustment will be to the carrier's Hawaii schedule.

Watterson cited as an example Chicago's Midway Airport, which has 26 city pairs that are changing frequencies. Midway to Columbus, Ohio, will drop to four frequencies from six, with the two flights instead dedicated to Florida flights to Sarasota and Tampa. The carrier also is adding two frequencies from Midway to Phoenix. 

"The composition moved a little," Watterson said. "Sarasota is a pure leisure play, but Tampa and Phoenix [are] a combination of leisure and business. It's kind of a mix shift at the margin. You do this through all of our network, it leads up to a substantial change, but each one itself is modest."

Still, the company is "very pleased with the gains we continue to make in the managed business space." Green said. "Small and medium businesses, government and education are strong points for us, and we are growing the number of accounts we have under contract. All of this has allowed us to continue to grow our share of managed business travel. We gained additional passenger market share in the second quarter and exited the quarter seeing more unique travelers flying for business than we saw pre-pandemic."

Southwest Q2 Metrics

Southwest reported an "all-time quarterly record" of $7 billion in revenue, a 4.6 percent increase year over year. This figure was driven by strong leisure demand, according to the company. Passenger revenue was up 4.7 percent year over year to $6.4 billion. 

Quarterly net income was $683 million, compared with $760 million a year prior. Average fuel cost for the quarter was $2.60 per gallon.

Southwest projects third-quarter capacity to increase about 12 percent year over year, with full-year capacity anticipated to grow 14 percent to 15 percent. Third-quarter guidance on average fuel cost is $2.55 to $2.65 per gallon. The carrier increased its outlook for full-year fuel cost to $2.70 to $2.80 per gallon compared with prior guidance of $2.60 to $2.70 per gallon.

 Southwest Q1 performance