Southwest Airlines Expects Loss In Q1 After First Profit In Two Years
Southwest Airlines Co has reported its first quarterly profit in two years, but warned of a loss in the current quarter through March as the Omicron coronavirus variant depresses revenue and drives up costs.
Expecting To Be Profitable
The Texas-based carrier expects to be profitable for the remaining three quarters of 2022 and for the full year.
While leisure travel tends to cool off in January and February in a normal year, Southwest said that the Omicron variant has led to further weakness in bookings and more ticket cancellations.
Expected Revenue Hit
It expects a $330 million hit to revenue in the first two months of this quarter due to the drop in demand for leisure and business travel.
Statements By Incoming Chief Executive
Incoming chief executive Bob Jordan said that the carrier is "optimistic" about bookings and revenue trends for March, when it expects to return to profitability.
"With COVID-19 cases trending downward, the worst appears to be behind us," Jordan, who is due to become the company's sixth CEO this month, said.
The comments were consistent with those from other US carriers.
New York-based JetBlue, which last month reported a loss for the quarter through December, expects a sequential month-on-month improvement in travel demand after the Omicron-induced setback, resulting in a profitable second quarter and a "very strong" summer for the company.
Alaska Air anticipates profitable growth in 2022 as its capacity is projected to reach pre-pandemic levels by this summer. The Seattle-based company, which faced operational disruption due to COVID-19, reported a profit for the fourth quarter.
Operational Disruption, Higher Costs
An increase in COVID-19 infections among employees and winter storms have led to mass flight cancellations. Southwest has cancelled more than 5,600 flights, thus far, this month, which is estimated to cost it $50 million in revenue.
The company said that approximately 5,000 employees, which is approximately 10% of its workforce, had contracted the virus in the first three weeks of January.
To mitigate the staffing issues, it is offering pay incentives for operational employees through early February. It has also further cut its capacity for the first half of the year.
The company said that its operation and staffing now have stabilised. All the incentives, however, are estimated to inflate its costs by $150 million in the current quarter.
Southwest has plans to add at least 8,000 employees to its workforce this year. But a tight labour market is driving up its wage costs. For example, it has raised starting hourly pay to $17 per hour from $15, which is estimated to cost the company $20 million-$25 million this year.
"The labour market continues to be a challenge," chief financial officer Tammy Romo told investors on an earnings call.
Higher labour and airport costs along with lower capacity are estimated to increase its overall costs by as much as 24% in the current quarter compared with the same period in 2019.
The company, however, expects cost pressure to peak in the current quarter.
Strong holiday travel demand before the Omicron outbreak helped Southwest to report an adjusted profit of 14 cents per share for the quarter through December, its first quarterly profit without US government aid since 2019.