Southwest Airlines notched record revenue and profit during the second quarter as demand for discount travel surged.
The Dallas-based carrier said on 28 July its profit rose to $760 million, up 2.6% from 2019’s $741 million.
Revenue jumped to $6.7 billion, a quarterly record, up almost 14% compared with the second quarter in pre-coronavirus 2019.
“Well, what a difference a quarter can make,” says chief executive Bob Jordan. “I don’t think any of us expected demand to surge to the levels experienced in the second quarter, especially in June.” That strong demand is continuing, he adds.
The company says it experienced “inflationary pressures and headwinds from operating at sub-optimal productivity levels in the second quarter”, and that those headwinds will continue for the rest of the year. But, barring further unforeseen events and based on current trends, Southwest’s executives say the airline will be “solidly profitable” for the last two quarters and the full year 2022.
“We are in the middle of the busiest summer travel season we have seen in several years,” says chief operating officer Mike Van De Ven.
It is the “most stable revenue environment we have had in two years”, Jordan adds.
FLEET
Despite stronger financials, the airline’s managers say the carrier is “experiencing delays” in aircraft deliveries from Boeing. Accordingly, Southwest cut its 2022 delivery expectations of 737 Max by about half as many it previously planned – 66 airframes instead of 114.
In the first six months of the year, Southwest had hoped to receive 28 Max 8s. It only received 12, all arriving in the second quarter. In the third quarter, the company expects to receive another 23 737s, followed by 31 in the final quarter of 2022. Southwest does not anticipate receiving any 737 Max 7s this year. Boeing is still working on that type’s certification.
Additionally, Southwest now expects to take 52 Max 7s between 2022 and 2023, rather than its previously planned 98 aircraft. The company warns that the FAA will be responsible for certifying that version of the 737 Max, and it offers no assurances that the Max 7 variant will be flying in the expected timeline.
“Both Boeing and GE, and others, are suffering supply chain issues just like everyone,” says Jordan. “It feels like it will take all of 2023, and could leak into 2024, [in order] to catch back up to the original fleet delivery plan.”
That said, the reductions will not compromise the carrier’s schedule through March 2023, it says.
The airline ended the second quarter with 730 aircraft, and plans to have 765 aircraft in its fleet by the end of the year. It expects to retire 29 737-700s in 2022.
FLIGHT CREDITS
Southwest also said on 28 July it has shifted its flight credit programme so that the credits will no longer expire, the first US airline to make that move.
“Based on research and feedback, we believe flexibility has become even more important to customers over the past few years,” Jordan says. “It will be not just a customer-positive, but it will also be a financial- and shareholder-positive as well as we win more customers.”
The airline expects to take a $250-300 million hit during the third quarter due to the shift, as travellers who were unable or unwilling to use the credits during the height of the coronavirus pandemic cash them in. ”The company does not anticipate a material impact from this policy change beyond third quarter 2022,” chief financial officer Tammy Romo says.
For the third quarter, Southwest expects revenue will rise 8-12% over 2019 levels, and capacity will remain about the same as it was in the third quarter of 2019.
