Southwest Airlines Q4 2021 Earnings Call Transcript

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January 27, 2022

Key Takeaways

  • Southwest returned to profitability in Q4 2021, reporting $68 million in net income ($0.11 per share) and $85 million on a non-GAAP basis, driven by strong holiday leisure demand, improving business travel, and incremental credit-card revenues.
  • The Omicron surge in January–February sidelined about 5,000 employees and cut roughly $330 million of Q1 revenues, prompting Southwest to extend $150 million of incentive pay through early February to sustain staffing levels.
  • To preserve operational reliability amid staffing challenges, Southwest lowered its 2022 capacity outlook to down 4% versus 2019 (Q1 down 9%), and expects a step-change rebound by March with profitability in Q2–Q4 and for the full year.
  • Unit costs (CASM ex) are now forecast to peak in Q1 and decline thereafter, as Southwest aims to restore its 2018 productivity and efficiency by end-2023 and deliver $1–1.5 billion of incremental EBIT in 2023 from network, fleet, and technology initiatives.
  • Southwest exits 2021 with a rock-solid balance sheet—$16.5 billion of liquidity, 54% leverage, and a triple-investment-grade rating—supporting its fleet modernization, network expansion, and competitive positioning.
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Earnings Conference Call
Southwest Airlines Q4 2021
00:00 / 00:00

There are 17 speakers on the call.

Operator

Good morning, and welcome to the Southwest Airlines 4th Quarter and Annual 2021 Conference Call. My name is Chad, and I will be moderating today's call. This call is being recorded, and a replay will be available on southwest.com in the Investor Relations After today's prepared remarks, there will be an opportunity to ask At this time, I'd like to turn the call over to Mr. Ryan Martinez, Vice President of Investor Relations. Please go ahead, sir.

Speaker 1

Thank you, Chad, and thank you to everyone for joining us today. In just a moment, we will share some brief remarks and then open it up for Q and A. And on our call today, we have our Chairman of the Board and CEO, Gary Kelly Executive Vice President and Incoming CEO, Bob Jordan Executive Vice President and CFO, Tammy Romo Executive Vice President and Chief Commercial Officer, Andrew Watterson And President and Chief Operating Officer, Mike Vandevan. Just a few quick notes. First, we will make forward looking statements today, which are based on our current And our actual results could differ substantially from these expectations.

Speaker 1

And second, We had a few special items in our 4th quarter results, which we excluded from our trends and for non GAAP purposes, and we will reference these non GAAP results in our remarks today. So please see our press release from this morning and our IR website for more information and our cautionary statement, which covers these topics in more detail. So with that, I have the pleasure of turning it over one last time to my friend, Gary Kelly. Thank you, Ryan,

Speaker 2

and good morning, everybody, and thank you Thank you for joining us for the Southwest Airlines 4th quarter 2021 earnings call. And 1st and foremost, I'm delighted to be able to say there were earnings And better than we thought at Investor Day last month. It's obviously a great way to end a tough, but much improved year, A great way to start a new year. We are of course fighting our way through the omicron surge in January, February And looking forward to a strong rebound in March and thereafter. And as always, that's barring any unforeseen events.

Speaker 2

I expect we'll make great progress in 2022, and we'll enjoy another much improved year. As we all know too well, it will not be without its But our people and our leadership are more than up to the task. I'm enormously proud of all of them, And I thank them profusely for their resilience and their perseverance through these myriad of challenges that we've faced the last 2 years. They've just done a phenomenal job. Southwest is on top because our people deliver great service at lovefares And our business model delivers consistent profits, enhance some returns on capital and we've emerged from 2 years of pandemic with our balance sheet strength And our liquidity intact and we are perfectly positioned to restore, to expand and compete aggressively in the coming years.

Speaker 2

I could not be more enthused and more excited about our future. So with that, I'm going to turn it over to our Standing CEO and waiting for 5 more days, Mr. Bob Jordan.

Speaker 3

Well, thank you, Gary, and hello, everybody. We were last together on December 8th at Investor Day, and a lot has happened since then. But before I get to that, I want to thank my friend, Gary Kelly. Gary is a phenomenal leader and has done so much for Southwest and for me personally. There's just No way to say thank you enough for his 18 years of leadership as our CEO, and I'm thrilled that he will be our Executive Chairman.

Speaker 3

I'll take over the CEO responsibility for investor meetings going forward, so this is Cary's last earnings call. And my friend, I just want to stop and say a Thank you, and I love you. Well, 2022 has had a challenging start, but that doesn't change our goals for the year, Getting properly staffed, focusing on our people, making meaningful progress, returning to our historic operational reliability and efficiency, providing our legendary hospitality and returning to consistent profitability. We made significant progress in 'twenty one, including a profitable 4th quarter Despite the pandemic, it saw strong demand, 88% of 2019 revenues restored and managed business demand ahead of our Expectations for December. While we don't expect to be profitable this quarter, the Omicron impact does appear to be isolated to January February, and we expect to be profitable in the remaining quarters and for the full year 2022 based on our current plans.

Speaker 3

Our people performed just really well during the Q4 as they always do, in particular during the holidays, and demand held up Well, through year end despite the Omicron variant. Beginning in early January, we experienced a very difficult environment due to rapidly rising COVID cases And a decrease in available staffing levels. It's amazing when in the 1st 3 weeks, we had roughly 5,000 employees test positive for COVID, with employee cases roughly 2.5 times what they were during the Delta variant. The resulting staffing shortage combined with winter weather caused I'm pleased to report though that over the last few weeks, the operation and staffing have stabilized, and We've seen performance even better than during the holidays. Yesterday, for example, we were 95% on time, which I'm just hugely proud of.

Speaker 3

To maintain sufficient available staff, we extended incentive pay programs for ops employees through early February. While that does add temporary cost pressure, It's imperative that we have sufficient staff to operate our schedule and minimize our flight cancellations. COVID case counts are on a downward trend, And we intend to normalize our staffing and pay structure as a result. Hiring is part of the equation, of course, and we met our 2021 hiring goals, and we are on track with plans to add at least 8,000 employees this year. We're also raising our starting wage rates To compete competitive in the market and due to the impacts from Omicron and the variant and recent staffing challenges, And we're further moderating our first half twenty twenty two capacity plans to provide additional buffer for the operation.

Speaker 3

We're encouraged by the recent improvement in bookings across the booking curve, especially in the March timeframe, and we are Hopefully that business travel will resume the 2021 trend. It appears that Omicron impacts are pretty well contained to January February from a revenue perspective, and we believe our temporary approach to boost available staffing is working. We'll stay flexible of course, and we'll be willing to further adjust our plans if if needed. So several things have transpired since Investor Day, all driven by the pandemic though. But for Omicron, we would be on our Investor Day Q1 full year 2022 guidance.

Speaker 3

However, I want you to know, make no mistake, we are laser focused on preserving our low cost position in the industry and returning to 2018 productivity and efficiency levels by the

Speaker 4

end of

Speaker 3

2023. We believe Q1 CASM ex is a peak And our plans call for unit cost to ease from here into 2023. Looking at 2023, based on current growth plans, we And beyond that, I'm really excited about opportunities that continue network growth as we add gates in key cities such as Denver In Phoenix, in Las Vegas, Baltimore, Nashville and even more. Beyond 2023, we see opportunities to meet and then beat Our historic productivity and efficiency levels as we continue to grow the company and focus on modernizing our operational tools and processes, And Mike will talk more about that. But I want to repeat my main message from Investor Day.

Speaker 3

Despite the near term noise, we have a superb business model With substantial underlying competitive advantages, we have a great 5 year strategy and a strong set of initiatives that will drive Significant value. Our new co brand credit card agreement is in place with our partner, Chase. Our GDS expansion is complete, and our Southwest business team is armed with the tools they need to grow our business customer base. We continue to work on our new fare product and our revenue management system optimization, some more to come There, but both should begin producing value this year. And as we continue retiring older 737seven 100 aircraft And taking the MAX aircraft this year in support of our fleet modernization initiatives as well.

Speaker 3

All combined, these initiatives are expected to deliver incremental EBIT of $1,000,000,000 to $1,500,000,000 in 2023, And we continue to expect roughly half of that value this year given the initiatives in place. Like Gary said, last but not least, I just want to thank our amazing There have been all kinds of challenges, and they have performed just superbly. They continue to do an incredible job And managed through all of these challenges, and I am just in all of them. And together, we will emerge from the pandemic, and we will see the opportunities And with that, I will turn it over to Tammy.

Speaker 5

All right. Hello everyone and thank you Bob. I have worked with Bob for a long time and I agree with Gary. He is going to be a great CEO. And my friend Gary Kelly, you are amazing and I just want to thank you for all that you have done for our company And for all of us and for all of our shareholders, and I am not going to say anything else because I will get choked up.

Speaker 5

So instead I'm going to provide a quick overview of our financial results and share some additional color on our outlook beyond what we provided in our press release to you all this morning. And I also just want to thank our employees For their incredible resilience as we manage through this dynamic environment. It is their hard work, Dedication and focus that enabled us to achieve an important milestone in our recovery with our first quarterly profit since the We reported a $68,000,000 profit in 4th quarter or $0.11 per diluted share and excluding special We reported an $85,000,000 profit or 0 point 14 dollars per diluted share. As Bob mentioned, our 4th quarter profit was driven by strong leisure demand during the holidays, business travel momentum and incremental Revenue from our new co brand credit card agreement with Chase. Our 4th quarter results We're all within the guidance ranges provided last month at Investor Day.

Speaker 5

For full year 2021, our net income was $977,000,000 or $1.61 per diluted share, Driven by $2,700,000,000 of payroll support program proceeds, excluding this temporary benefit to salary, wages and benefits And other smaller special items, our full year net loss was $1,300,000,000 or a $2.15 loss per Andrew will cover our revenue trends and outlook here in a minute. Taking a look at cost, We continue to experience inflationary cost pressure experienced in 4th quarter, primarily in salary, wages and benefits And airport costs as expected. A portion relates to hiring, and We made great strides toward our hiring efforts in 2021 and remain on track with plans this year. And of course, the labor market continues to be a challenge, which continues to pressure wage rates across the board. Since Investor Day, we have experienced additional cost pressures related to Omicron and winter As a result, our Q1 unit cost inflation compared with Q1 2019 And excluding fuel special items and profit sharing has increased about 10 points.

Speaker 5

Roughly half Of that increase is driven by the $150,000,000 of additional incentive pay we are offering to operations employees through early February and the other half is associated with buying fewer ASMs than we were planning. In light of the significant impact from the Omicron wave on available staffing, extending the temporary incentive pay and further reducing our We are very pleased with the progress we made in the quarter. Aside from these impacts, we would be on track with our Market fuel prices have continued to rise here, Which also resulted in a $0.10 increase in our fuel cost per gallon guidance. Our estimated first quarter fuel price in the $2.25 to $2.35 per gallon range It's also roughly $0.25 higher than our Q1 2019 fuel price and that's inclusive of an estimated $0.35 of hedging gains here in the Q1. Turning to our full year guidance, at Investor Day we were planning for capacity to be roughly flat versus 2019 levels With no material impact from the Omicron variant on either revenues or costs at that time.

Speaker 5

Fast forward to today, the impact from the Omicron variant on available staffing has led us to reevaluate our first half our 2022 capacity plans, in particular March through May. Our planned Flight schedule adjustments take some capacity upside optimism off the table for this year and reduces our full year 2022 capacity outlook by about 4 points from roughly flat to down 4% versus 2019. I've already covered the $150,000,000 of additional incentive pay in the Q1 and in order to be more competitive on the hiring front, In particular for ground operations, we are raising starting wage rates from $15 per hour To $17 per hour, which is estimated to be a $20,000,000 to $25,000,000 total impact to this year. And of course, we have contemplated labor rate inflation in our guidance as best we can for this year, Understanding that the market is somewhat uncertain, this is clearly not where we hope to be along Our recovery curve nearly 2 years into this pandemic, but we are making great progress. While we must remain nimble in this environment and take the necessary actions to take care of our employees and provide a reliable product for our customers, We are very focused on the long term and determined to get back to 2018 levels of productivity and efficiency as we shared with you all at Investor Day.

Speaker 5

As Bob said, our goal is to get there by the end of next year. Although it is early based on our current plan for 2022 and preliminary plan for 2023, We expect 2023 CASM ex will decline year over year compared with 2022. Longer term, our framework that we provided at Investor Day remains unchanged and that includes a post pandemic target of mid single digit ASM growth accompanied by low single digit CASM ex growth. I want to be clear that our longer term CASM Ex framework includes an estimate for labor rate increases as best we can estimate today. Turning to fleet, we currently have 77 MAX from orders And 37 MAX options with Boeing this year.

Speaker 5

While our plan assumes we will exercise the remaining 37 options this year, We maintain the flexibility to evaluate that intention as decision points arise. We continue to believe that taking the additional options this year will yield a positive NPV on aircraft replacements if we don't deploy them in the network. As I have mentioned to you all before, we won't incur a material CASM ex penalty from holding on to extra aircraft in the event we temporarily park some of our -700s while capacity is moderated this year. As we work our way back to an efficient utilization of the fleet, We remain in a fortunate position to have the flexibility needed with our retirement plans without a financial penalty. I'll wrap up with a quick note on our balance sheet strength.

Speaker 5

We ended 20 21 with liquidity of $16,500,000,000 Our leverage is at a very measurable 54% And we continue to be the only U. S. Airline with an investment grade rating by all 3 rating agencies, which I believe is one of our key competitive advantages. We have ample liquidity that allows us For further cushion in the event of further COVID wave, overall, our balance sheet strength puts us in a category of 1 in terms of our ability to withstand shocks and remain financially healthy. With that, I will turn it over to Andrew.

Speaker 6

Thank you very much, Tammy. I'll also start by extending my gratitude to Gary. I'll be forever grateful for all he's taught me with his words and his actions. I'll provide some additional color on our revenue trends and outlook and point you to our earnings release for more detail. Looking back to our last earnings call in October, we were dealing with a Delta variant.

Speaker 6

The negative revenue impact to Q3 was $300,000,000 At that time, we estimate the negative revenue impact to Q4 of $100,000,000 Revenue trends have begun to pick up Our pick back ups have stabilized in mid September, and our outlook calls for sequential monthly improvement in revenues throughout Q4. We reaffirmed this in our early December investor update, and we closed the quarter strong. Our operating revenues finished within guidance, Down 11.8 percent and managed business revenues came in better than guidance, down 50% in December. We saw solid leisure demand for Thanksgiving and Christmas and business demand held up well with positive momentum from GDS and Southwest Business. The negative revenue impact from the Delta variant came in lower than we thought at around $60,000,000 as we saw continued rebound in demand and yields throughout the quarter.

Speaker 6

However, we saw some choppiness in late December from decelerating bookings and increasing cancellations. We had a $30,000,000 negative revenue impact $100,000,000 from COVID, as we were

Speaker 3

able to mitigate some of

Speaker 6

the load factor decrease through higher yields. And And of course, the most notable item in Q4 was incremental revenue from our new credit card agreement with Chase, which we covered at Investor Day and included in our most recent revenue guidance. While we can't share the specifics about the incremental revenue from our new credit card agreement, you can see that other revenues in Q4 2021 increased 20% Compared with Q4 2019, far outpacing the recovery in passenger revenue, and we are on track for expected benefits in 2022. Our new markets continue to develop and perform overall in line with expectations aside from the impacts from the Delta and omicron waves. The Hawaii markets also showed improvement and all of these markets trended in line with the broad based improvement we saw across the rest of the network.

Speaker 6

Now looking at Q1, we estimate the weather related and staffing related flight cancellations in January Resulted in a $50,000,000 negative impact to operating revenues. Additionally, bookings have slowed for January February, which are seasonally low travel periods anyway for leisure. And trip cancellations were running quite high beginning in early January, but have moderated and are back to normal trends. We expect the omicron related negative revenue impact to January February combined to be roughly $330,000,000 Like the delta variant, the impact of omicron related trip cancellations has been mainly focused in the close in window and we remain optimistic about the likelihood of demand recovery On the corporate travel side, the business demand we experienced in December has slowed, We continue to believe there's pent up demand for business travel and we're hearing from many of our corporate customers that they intend to ramp up travel post Presidents' Day. I think that will depend on where we are with COVID case counts and hospitalizations, but we are encouraged by what we're hearing from our customers in terms of their future travel plans.

Speaker 6

We expect Q1 managed business revenues to be down 45% to 55% versus 2019 and to improve sequentially From January through March. And our Southwest and GES business initiatives is also on track for expected benefits in 2022. When you put all these moving parts together, that gives us to our Q1 operating revenue guidance of down 10% to 15% versus Q1 2019. This outlook is in line where we were in Q4, but we are currently expecting a step change improvement in March. As far as our other initiatives, new fare product remains on track for deployment by mid year and the new revenue management system continues its progressive rollout.

Speaker 6

And lastly, we're in the process of adjusting our published flight schedules in March through May in order to further support the operations and adjust to available staffing trends. The results of this exercise combined with the flight cancellations we have experienced so far this month is a 3 point reduction in Q1 2022 capacity From down 6% to down 9% compared with Q1 2019. And for full year 2022, as Tammy mentioned, It's a 4 point reduction from roughly flat to down 4% compared with full year 2019. Our flight schedules remain subject to further adjustments if needed. But while this is a slight delay to our previous capacity plan, we still have time to get back on track.

Speaker 6

As of March 2022, we are roughly 75% restored based on trips And we continue to expect to restore the vast majority of our route network by the end of 2023. And with that, I'll turn it over to Mike.

Speaker 7

Well, thank you, Andrew, and hello, everyone. Our people did face quite a bit of adversity in 2021, and I just am really proud of their tremendous finish to the year. And they've built quite a bit of momentum thus far into 2022. As we've all said, we've moderated or we began moderating our capacity in the Q4 to provide more staffing cushion in the environment. But at the same time, we knew we had some peak holiday travel periods over Thanksgiving and Christmas through the New Year's timeframe And we really did jump up our daily trips.

Speaker 7

And we needed all hands on deck through those periods, and we incented folks and we urged them For those that were willing to pick up open time or voluntarily work on their days off with premium pay, and that certainly worked. Our people really responded. So if you exclude the day of Thanksgiving, we averaged about 3,500 trips a day during that Thanksgiving holiday period And that was up roughly 3 20 trips a day above the weeks leading into Thanksgiving. And our on time performance for that period It was 87% and that was better than our 5 year average. So we ran a similar play over the Christmas holiday And our daily trips there increased to roughly 3,600 a day and again our people responded.

Speaker 7

So normally during the Christmas holiday, we deal with weather, but this year we also saw the beginning of a sudden and the surging spike in COVID cases. And because we had those people to pitch in to pick up extra shifts during that week of Christmas, we had a completion factor of 99.2% And we had less than 1% of our flights canceled in the face of that COVID surge. All told, we ended up the 4th quarter With an on time performance of 72.6%, mainly due to some of the challenges we faced in October, that's certainly not up to our standards. We must do better, and we will. But our holiday performances were very good, and we know that we can operate in our peak Travel days when everyone is available.

Speaker 7

So we really have momentum to build on. So in contrast to those previous holiday periods, January started in the face of severe weather and this omicron variant spread rapidly. And as Bob mentioned, We had roughly 2.5 times the number of employees with COVID cases for Omicron than we did with Delta. And we had roughly 5,000 employees become sick in the 1st 3 weeks of January. And so the biggest impacts were in terms of flight Cancellations for the period of time, the 1st week of January, January 1 through January 7.

Speaker 7

And in that We canceled roughly 3,800 flights. About 1900 of those were for weather and about 1600 of those were for staffing. And then our on time performance of that period was 41.5%. So we reinstated the incentive program to encourage, again, those who would come in and pick up extra shifts and help cover the flight schedule. And again, the response was superb.

Speaker 7

We got all that implemented and so from January 9 through 25th, our on time performance jumped to almost 87% And that leads the industry for marketing carriers and the incentive pay program runs through February 8. We're also benefiting from a decline in our employees that were sidelined due to COVID. Our case counts Pete, in that 1st week of January and just by way of example, we had over 700 pilots and 1500 Slide attendants that were unable to work in that timeframe and thus the incentive program to help cover those that were out. Those COVID numbers have dropped Substantially since then to roughly 100 to 150 people for each group and that's a lot closer to what we originally expected. Next, we continue to aggressively hire.

Speaker 7

Bob mentioned that getting staffed is one of our key objectives for 2022. We also want to make progress toward our historic operational reliability and efficiency metrics and in a lot of ways those go hand in hand As we're not operating at optimal levels today nor is our network restored to where we want to be relative to 2019. For the over 8,000 employees that we intend to hire this year, about 40% of them are flight crews, About 40% of them are ground operations, so it's very heavily operations focused to support the schedule this year and beyond as we resume the growth. As we restore the route network this year into 2023, that should provide the foundation to recapture better operating leverage. And we're also working on other initiatives to improve efficiencies.

Speaker 7

Of course, we've got the fleet modernization cost initiative, But we're also working on things like enhancing our turn times, which are already the best in the industry, expanding self-service options for our customers and investing in daily schedule management tools, which will help us manage regular operations more efficiently. So we've got many items in our technology and process Improvement pipeline in order to support our low cost position within the industry and improve our overall efficiency and our resilience. Just in closing, as we move forward into 2022, we have an exceptional order book for the fleet With its economics and its flexibility, we have new technology foundations in place for our maintenance and our airport systems. We have a laser focus on getting staffed and running a reliable operation and we're building an operations modernization portfolio of initiatives that I touched on. And our employees have sacrificed.

Speaker 7

They've worked hard through a challenging and ever changing environment. And I think that positioned us well to carry this January momentum through the Q1 and beyond. So I am immensely grateful for their grit, Their determination and, of course, their care for our customers. And so with that, Ryan, back to you.

Speaker 1

Well, thank you, Mike. I believe we have analysts queued up. So Chad, if you'd please go ahead and begin our analyst Q and A.

Operator

Thank you. We will now begin the question and answer session. And the first question will come from Jamie Baker with JPMorgan. Please go ahead.

Speaker 8

Hey, good morning, everybody. Just quickly, Gary, when I first met you back at Kidder Peabody, I could not have been less relevant, but you showed me just as As you did to the Glenn Engle's and Kevin Murphy's and Sam Buttrics of that era and it really meant a lot to me and it gave me the confidence to Can you on the career trajectory and I just wanted to thank you for that. I will sincerely miss speaking to you on these calls, but I do look forward to Hopefully being a thorn in Bob's side. So

Speaker 2

I would expect nothing less.

Speaker 8

Okay, good. I'll start with Tammy though. So Tammy, you emphasized that your cost outlook does envision higher wage rates, but I had asked you about that at Investor Day and at the time you said you weren't Accruing for new labor contracts, I think I probably got my wires crossed. Could you just clarify that there is something For new union contracts in your forward cost guide, is that accurate?

Speaker 5

Yes. Thanks Jamie and I appreciate the question there. So Yes, we are not currently accruing for open labor contract today. So we are not accruing for that, so there is nothing in our Q1 guidance. Longer term though we have incorporated Our best estimate of annual labor rate increases into all of our targets.

Speaker 5

So here and then here just to be clear for 2022, We know we have some inflation here, so we are doing our very best to incorporate What we think we are going to incur here in 2022. So hopefully that clears that up for you.

Speaker 8

It does. Thank you very much. And any update on the 4th fair rung that you intend to load this spring? Are you still on Frank, if you're not ready to disclose what it includes, could you share any ideas that maybe you ruled out from a pricing perspective?

Speaker 6

Hi, Jamie. It's Andrew answering your question. We're still on track for a midyear rollout of that. We're going through right now We expect this to be above want to get away. So we've ruled out taking away features From customers and charging them more, these will be features that are in addition to Wanna Get Away for which we believe customers will happily pay a little bit extra.

Speaker 6

We also believe these features will be relevant to business travelers, especially some small and medium sized business travelers. So that's how we want to position it versus say The fair product just above and just below it. Does that answer your question?

Speaker 8

It does indeed. Thank you very much. Yes, that will be it. I'm sure a lot of accolades coming for Gary. So I kept it, Panchi.

Speaker 8

Take care.

Operator

And the next question will be from Duane Pfennigwerth with Evercore ISI. Please go ahead.

Speaker 9

Hey, thanks. I don't actually have any Ancient Wall Street history, but I did want to ask you, Gary, if you received any calls from music producers since you dropped your recent tribute?

Speaker 2

We've always been very circumspect about confidential information here, so I'm going to have to decline to answer your question.

Speaker 9

Fair enough. I wish you well on that journey. With respect to the 4 point cut to full year capacity, Is that all about the rate of demand improvement in first half? Or was any of that a function of kind of looking at the operation and

Speaker 5

Yes, I'll jump in and Andrew and others may want to I will chime in, but no, we it really was more about adjusting, Being a little more cautious with regard to our operations, obviously Omicron has had a significant impact on us here in the Q1. So just we felt that it was prudent to take some capacity out and as we Have stabilized the operation and as you've heard us comment here, we're doing a great job in that with really an outstanding performance here over the last couple of days.

Speaker 6

The only thing I would add to what Tammy said is it was designed to make it more operable and So that's both how much we're flying, but also where we're flying, given the some of our ground based staffing shortages. So the combination of those two We're on the crux of it. Obviously, we look at demand, we'll make those adjustments, but the motivation here was operational reliability.

Speaker 3

Yes. Duane, the only thing I would add to is that the it's all a guess, right, at this point. So we're making our best guess based on We have terrific staffing plans. I'm confident we will meet those here in 2022. If We get ahead of those.

Speaker 3

We obviously, we preserve the ability to sort of work on our capacity on the other end in the back end of 2022, we just don't know yet. But, yes, it's really all due to staffing at this point. We've got to run a reliable operation. We've got to have enough staff

Speaker 9

And then you mentioned it with ground handling, but wonder if you can provide some anecdotes Where you know today, you're obviously overstaffed from a longer term perspective. What are some of the functions beyond ground handling where you're keeping Actively deciding to keep a higher buffer and where predictability is just not there yet. Thanks for taking the questions.

Speaker 3

Yes. And I might separate sort of the our experience at the beginning of January and then the rest of the year As we had a really rapid rise in COVID cases in the 1st couple of weeks of January, You had an overall Southwest Airlines impact operationally, and then you had very locational impacts. An example would be the Denver ramp. We had A rapid rise in our Denver cases on the Denver ramp, and we literally had to quickly moderate the Denver schedule to be able to operate there. But I think it's really the overall adjustments to capacity is really all groups.

Speaker 3

We need pilots, we need flight attendants, We need ramp staffing, and you need the appropriate amount of buffer in all of those areas until So we sort of see our way past COVID and understand what more normalized staffing, more normalized behaviors, more normalized Sick leave, looks like. So I would argue, it's really not one group. We have buffer. We're looking for buffer in all of those groups.

Speaker 9

It's very helpful. Thank you.

Speaker 6

You're welcome.

Operator

And the next question will come from Hunter Keay with Wolfe Research. Please go ahead.

Speaker 10

Thank you.

Speaker 4

Yes, I'll reiterate to you, Gary, you're a legend, man. It's It's been a pleasure. Thank you for keeping it interesting over the years. I had a question for you and it's I'd love to get your parting thoughts on the industry's outlook over the next 2 to 3 years. It's not a question about Southwest.

Speaker 4

I'm sure you're going to say you're As someone that's made a lot of good predictions over the years, what is your view, your sort of parting view on how the industry unfolds competitively whatever growth wise over the next 2 to 3 years.

Speaker 2

Well, thanks, Hunter. Well, I don't know how good of a prognosticator I've ever been or I don't think of myself that way. I do think that if you compare the U. S. To other countries, the U.

Speaker 2

S. Has left the commercial airline industry In pretty darn good shape. And were it not for the CARES Act, I think we would be having a very different conversation. So I think it's just important to acknowledge that up Having said that, there are still significant variations. So when you talk about the industry, it's hard to Think about it that way because there is strong and there is weak.

Speaker 2

There are strong balance sheets, there are weak balance sheets. And I think what we've experienced in 2021 is really humbling. A year ago and I You and I haven't talked in a while, but I think everyone I have run into where we have had this sort of videotape replayed, I would have never bet a year ago that this is where we would be here in early 2022. I thought we would have this pandemic beat and behind us. And it's far from that.

Speaker 2

So I think that just sort of provides the same And even bigger quandary now, which is where do we think we are going to be with the pandemic 2 years from now. We were honoring a former Dallas Mayor earlier this week and he and I were having the exact same conversation and his guess was 10 years. We're going to be dealing with this for 10 years. So I think that has a direct correlation with travel, tourism, hospitality, restaurants, All of that, we just have to be we need to hope for the best, plan for the worst is sort of the Age old advice that we have all gotten. It does feel like business travel wants to come back And I think that's encouraging.

Speaker 2

We were hoping for stronger business travel here in Jan Feb than what we are realizing. We all know why that So just again a perfect example. But I think the industry is pretty darn well capitalized, It's taken on a lot of debt, which is going to have to be carefully managed. We're going to have to be more heavily Dependent on consumer travel than where we were before, I think international also kind of fits into That category of it's probably different in the future than it has been in recent history And we'll just have to be prepared to be more successful domestically over the next couple of years. But in my opinion, and that's why I put it in my remarks, I think it's the best service and the lowest price wins.

Operator

And if you have

Speaker 2

that combination within the industry, you're going to win. I think it is a low cost gain Always, but I think that's even more acutely important right now and that will be a laser focus for our leadership team certainly for the next couple of years.

Speaker 4

That's very helpful. Thank you. Appreciate that. And then, I asked you this question about a year ago, Gary, about your never say never guy. If there was anything you'd never say never to, I

Speaker 7

guess same question comes for Bob.

Speaker 4

Is there anything that we can expect That you would say you'd never do as CEO or Southwest would never do as long as you're running the company?

Speaker 3

Well, there's some easy things here. We're not going to charge for bags. We're not going to have change fees. I mean, we're going to state, we're going to always be transparent. We're going to be open and honest with our consumers.

Speaker 3

Now, things change over the years for sure. As in my 30 4 years here at Southwest, we've changed our boarding. We've changed some of our product. We've added Wi Fi. We've added Rapid Rewards program.

Speaker 3

So things always change. But we're always going to lean to our customers. So yes, I think the number one thing that comes to mind, obviously, is no back fees, no change fees. The other thing that's not going to change, We are going to treat our employees right. We're going to treat our customers right.

Speaker 3

And we're going to stand for service,

Operator

The next question will be from Helane Becker with Cowen. Please go ahead.

Speaker 11

Thank you very much, operator. Yes, Gary, I'm going to miss you as Well, in fact, I remember our first meeting when you, Tammy and me were sitting in my office at Lehman Brothers. And It just seems like we're too young to retire, and I wish you the best in whatever You decide to do with your free time going forward, although maybe not so much free time that you'll have. So thank you actually for everything. And then separate from that, my question is really not sure who wants The answer has to do with the credit card program.

Speaker 11

Is there a way for Chase to separate out for you The charges that come for travel and the airline versus Charges that come for stuff, because as you think about going forward, the Percentage of stuff should decline as people have their Pelotons and their computers and all the other stuff they bought during And they should start to shift back to travel. So I'm wondering if Chase can parse that out for you If you can gain any intelligence from that.

Speaker 6

Hi Helane, it's Andrew. Yes, as part of our Relationship with Chase, we do receive that on a regular basis, and we review it on a regular basis. And indeed, as you probably would have seen through macroeconomic indicators, Charges during the pandemic skewed towards goods and less towards services. And then the services would also mirror the pandemic and we could see when Restaurants were more active with our card members or flights activity as well. And so that is something that I think tracks very well with what you In the macroeconomics, when you have it sort of on a high frequency basis like this, maybe we see it a bit earlier, that does help us with The pace and duration of these waves, so it's been very useful for us and we expect skew towards services going forward, which obviously would be

Speaker 11

Great. So you would expect that the rate of growth would what, accelerate With services or decelerate?

Speaker 6

I think it would accelerate given the composition of people spend, Services are underway now versus what they were in 2019. And given the customers very comfortable with a lot of cash in people's pockets, and so They have some pent up demand of potential expenditures above and beyond their kind of normal salary based compensation based spending. So we expect that composition to revert back more to normal as we would get past the pandemic, whatever that might be, as Gary pointed out. So therefore services spending on our card and the economy as a whole should increase as the health crisis abates.

Speaker 11

Okay. That's very helpful. Thank you. And then on the constraining spring capacity due to labor constraints, Will you be able to offset that with pricing?

Speaker 5

Helane, I'll jump in on that. Obviously we don't comment on pricing, so we as always We are going to work hard to achieve our financial objectives, but we will decline to comment specifically on pricing.

Speaker 3

And I might just point you to back to the Q4, which is we had I think we had a really strong performance revenue, pricing, fair yield. So we I think on sort of my memory is it was 92% or so of capacity restored. We had 88% of revenues restored, which is leading in the industry. And yields and fares were just slightly below 2019. So not speaking to your direct question, but just If you look at the Q4, we had a very strong revenue performance.

Speaker 11

That's very helpful. Thanks, everybody, and bye, Gary. Very sad.

Operator

Thank you. And the next question will come from Mike Linenberg from Deutsche Bank. Please go ahead.

Speaker 10

Hey, good morning, everyone. Gary, it goes without saying, I mean, you're going to be missed. And to be on a Southwest conference call without Gary Kelly, it's going to we're going to get used to it. But Bob's the right guy. In that regard, I do want to ask you one final question on a call.

Speaker 10

In your new role or I should say new role, but as your continuing role on the Board, Will you still dress up for Halloween?

Speaker 2

I don't think anybody can stop me. That's one of my pure joys in life and I do have grandchildren who get a kick out of it. So but it's all about me. I really enjoy dressing up.

Speaker 10

That's great to hear. So Gene Simmons will live on through Gary Kelly.

Speaker 2

You'll live on it. He's still my pal.

Speaker 10

That's awesome. All right. Well, on to a more serious topic here. I just I want to go back To the capacity change for 2022, I mean and I guess, Tammy, this is to you, where For the March quarter, you're shaving 3 points. But for the full year, you're cutting 4 points and it's obviously Tremendous upward pressure on your full year unit cost.

Speaker 10

And you did highlight that the June quarter looks like it's going to take Obviously a big cut there, but as I think about the math, it just seems like that you are taking a lot out. You did say you're being Cautious, it's all about returning operations, returning the integrity of the operations back to a normalcy. It does feel like it's extra conservative or are you does that down 4% for the year assume that you're not going to exercise The 37 remaining options. Can you just give some additional color there? It seems sizable.

Speaker 5

Sure. I'll give Some color here and then we might have some other step in here. But, yes, I guess We haven't given up here on adding additional capacity in the Q2. Again, we are just going to have to See how things go here on the staffing front and obviously as we have already said our priority is on the operations. But wherever we end up with regard to our capacity for the full year, At least at this point in time, we intend to exercise all of our remaining

Speaker 10

Okay.

Speaker 5

And the reason for that is really straightforward. Mike, we have a really Strong NPV on those aircraft either way. Obviously, we hope that we are putting those into growing the network And the fact is we just don't have to decide right now. So if we do not have A need for those in the network, we would just simply retire and accelerate the retirements of our On -seven hundred. So we are in the we have got the good fortune here of having tremendous Which was by design when we worked through our order book with Boeing.

Speaker 5

And

Speaker 3

Mike, I would just add to that this is all a forecast. If you look at Look at Omicron and how quickly we have adjusted. I think my memory is our network planning team is doing 2 or 3 times the number of changes They would typically. And so while we've got a great plan for 'twenty two, it all comes down to hiring. And I'm pleased that we're on our hiring plans for the fall, and we're on our hiring plans so far for January.

Speaker 3

But in the case that We're able to beat those. We've got up you'd have some upside, but we'll just continue to adjust. I think if you look at our fleet today, again, We are flying and therefore our ASMs are constrained based on our staffing. You probably have 5% to 6% of the fleet That is effectively unflow. In other words, we could be generating 5% to 6% more ASMs with the current fleet, But for the staffing, so we'll work really hard to make progress there.

Speaker 3

And so I wouldn't call that we've got a great plan, but I wouldn't call it a year done yet in terms

Speaker 10

Okay. So it's very fluid. And then just Bob, I guess just as a quick follow-up and this follows on Hunter's sort of the never say never. You did mention change fees. You talked about bags.

Speaker 10

I think I saw about a week or 2 ago, there was something about seat assignments. But again, it may have been a reporter Putting words in your mouth, anything that you can highlight with respect to that? Maybe it was a misinterpretation.

Speaker 3

No. A reporter would never put words in your mouth, right? No, it was just an illustration. I Going through the kinds of things that over time, I think you have a duty to look at, just like we have a duty to look at. Mike talked about our operational tools.

Speaker 3

We have a duty to look at our customer experience and how to enhance that. And at some point, I think just like we did years years ago, we will probably want to resurrect the work that we did there and just understand What our customers prefer, what our business customers prefer, what that does to the efficiency of the operation. So there was no prediction It was just an example of the types of things that you do have to take a look at over time.

Speaker 10

Great. Very good. And thanks again, Gary.

Operator

The next question will be from Savi Syth from Raymond James. Please go ahead.

Speaker 12

Hey, good afternoon. Just kind of curious on the managed business revenues. I know you kind of talked about expecting a step change in March, but how does Kind of the trends you're seeing today compared to how you exited the year end, just any color on how much that is getting boosted To buy some of the GDS initiatives that you can roll it out.

Speaker 6

Sure. This is Andrew. I'll start off by saying we see that managed business travel, Like our overall travel fluctuate with COVID waves. So there'll be a period of time early in the wave where start to come down the backside. We see those cancellations attenuate and bookings pick up.

Speaker 6

So we're on the backside of that of the bookings right now for managed business. And so we can see then that if we go back on its trend that we saw throughout 2021 where To above these ups and downs, you're on a solid trend from January through December. Now with regards to our initiatives, We can see that we are having a shift of travel from our previous channels to the GDS, We also can see there's incremental on top of that. Now because COVID has created such a disruption in travel patterns, We don't want to extrapolate and give final numbers on that, but we already see that we are achieving our business case and it is causing some channel shift, but that was all part of our plan to be able to Our corporate customers the choice of channel from which they want to buy with Southwest Airlines.

Speaker 12

Makes sense. And Just curious, some of the shifting gears a little bit, on the regional airline side, you had some of your legacy competitors cut a lot of small markets. Regional airlines are struggling a little bit from a piloting standpoint as well as some of the 5 gs issues. Curious if you are seeing a benefit given that South Those fly into some of the smaller markets, then you see some ULCCs flying. If you're seeing any benefit from maybe this kind of capacity that's being constrained?

Speaker 6

Well, I can certainly read about their unfortunate situation. However, the COVID wave is such a Predominant force in bookings right now, it's really hard to tease out a lot of other trends within that. And so right now, as Bob and Tammy mentioned, we're managing our network For our customers and our employees, and so that's really what we're aiming out. And so we don't really kind of look outside of our lane, so to speak, to what's going with others Because right now, we're just trying to keep ourselves good, stable operation and achieve our financial goals.

Speaker 12

Makes sense. All right. And then Gary, I'd like to echo a lot of the comments that have been shared on this call and wish you the best. Thanks.

Operator

And the next question will be from David Vernon from Bernstein. Please go ahead.

Speaker 13

Hey, good afternoon, everyone, and thanks for the time. I wonder if you can give us an update on where you are with Boeing on getting the MAX 7 certified. And And as you look out at the next 2, 3 years, obviously there's 136 from orders, 60 or so more options. How do we think about retirement expectations in relation to that? Should we be thinking that As these aircraft are coming in, you're going to be retiring or getting rid of some of the older classics?

Speaker 7

Yes. So David, this is Mike. So we've got about 450 ish 700s. And so at least half of our order book will probably be focused on replacing those airplanes. Boeing is telling us that they're targeting ATC for the MAX 7 by the end of the Q1.

Speaker 7

Of Of course, that's contingent on the FAA review process, which is a little bit different for new airplanes after the MAX Once they get that type certificate, it will take us about 7 months We're planning on about 7 months to be able to bring that airplane on our operating certificate. So we'll need to do things like get performance data from Boeing for the airplane, Ingest that performance data into our systems, do all the quality assurance work on that, update our manuals, and then get our own CMO to So we've just got we've got a lot of flexibility in that order book. Boeing is a very good partner with us and so we still expect to take the 114 airplanes at this point, But we may not be flying the MAX-seven until early 2023.

Speaker 13

Thank you. That's very, very helpful. And Andrew, maybe just as a quick follow-up. I'm assuming that despite the lack of business travel, the selling efforts on the corporate side have been continuing through the pandemic. Is there any color you can give to us in terms of how GDS enrollment has impacted your traction in terms of like the number of corporate groups you have or The win rate and bid process, anything you can give us to say to help us gauge kind of how effective this is going to be in terms of the competing

Speaker 6

Certainly, I'll try to give you some color. You can also look in the ARC data because we went into the GDSs, but also settled in ARC. So you can Track for yourself what we're selling in ARC as well. But if you look at our accounts, even going before going into the GDS, especially going to Sabre, we had Our corporate sales force in anticipation of this and our overall effort had increased the number of our accounts like we shared in Investor Day. Now these accounts, They buy through multiple channels already.

Speaker 6

Some maybe 100% one channel, but today, you take our largest corporate clients And they will buy through Swabiz, they will buy through our Direct Connect and now they will buy through GDS as well. It depends on the travel purpose As well as the subsidiary or population group within that company of how they buy. So what we're doing is we're letting them move in between. And we do see Some like the government moving pretty strongly towards some GDS transactions. We see professional services, not really abandoning some of the first To the Direct Connect and the swap bids and adding on GDS on top of it.

Speaker 6

So it really depends on the travel purpose and on the corporation as to which channel they prefer, which Which is the thesis of our strategy of let the customer choose and get out of the way and stop having friction. And so, as I mentioned earlier, the COVID waves really scramble a lot of trends. You As precise as you would be in normal times, but at the highest level, we do see incremental volume we're getting and we're hearing from corporate They are giving us incremental volume when we speak to them

Speaker 5

because of these channels.

Speaker 13

Thank you. And Gary, thanks for all the time,

Operator

We'll take our last question from Sheila Kahyaoglu from Jefferies. Please go ahead.

Speaker 14

Maybe if I could ask about the bottleneck in terms of ramping capacity from 2022 and 2023. It seems like a lot of the industry has faced supply constraints rather than demand constraints, especially domestically.

Speaker 5

How do

Speaker 14

you think about Southwest over Those challenges, do you take on 200 aircraft or so and I understand maybe half

Speaker 5

of those are for replacement?

Speaker 7

Well, I'll jump in and start and you all can add. So in 2021, We made some assumptions about the operating environment that we would be in and the environment that people would live in. And it was just clear to us as we went through this Delta variant that, that environment was Not appropriate. And we've spent a lot of time in 2021 reacting to that. It caused our crews to be rescheduled.

Speaker 7

Call. And we had a reliability challenge for the airline. Our approach in 2022 really is To just accept that the environment that we're in currently might be the environment that we're in for a while and go ahead and plan the airline And staff the airline like that. And so that's what you're seeing with respect to the capacity adjustments here in 2022 is just making the assumption that Let's still assume things are going to get better until they actually do. So we have a very aggressive plan to go hire people.

Speaker 7

I think our wage rate increases, especially in the frontline for the ground, will help us accelerate Our staffing, I think, will have plenty of access to pilots and flight attendants. So I feel good that our staffing plan is going To come to fruition, and then the question just is, as we bring the people on and we mitigate The premium pay, we mitigate some of the regular operations. We run a more stable operation. Can we Will we see different behaviors? And if we do, that gives us upside.

Speaker 3

Will, and Sheila, just What's the constraint? At the beginning of the pandemic, it was all about managing down your capacity because of demand. Demand fell 97% and then stayed down 70% for a long time. So it was all about managing to lower demand. Well, that's not where we are today.

Speaker 3

Again, sort of back to the Q4, we had obviously Strong revenue, strong yield, strong fares, strong demand overall, and that's with business demand down 50%. So very Leisure has returned to 2019. Obviously, that was interrupted by Omicron, but I'm confident that The leisure demand is restored, and we just need to get the staffing levels to the point where we can operate our aircraft, Operate them reliably, produce the kind of operational performance that our customers need and want and deserve, and it's just going to take staffing to do that. And obviously, that's staffing and a strong labor market, which is why you saw us raise our starting wages. But no, to me, the moderation is all about Staffing, not because of any concern over demand.

Speaker 3

And so then again, you layer on to the 4th quarter, The 50% recovery in business continues to recover in 2022, and we're hopeful that it recovers by the end of the year To say down 10 to 20, I think we'll have plenty of demand. It's all about getting the hiring to restore the capacity.

Speaker 5

Awesome. Thank you.

Speaker 7

Thank you, Sheila.

Speaker 1

All right. Any last thoughts before we wrap up?

Speaker 2

Yes. Thanks, Ryan. I just wanted to Acknowledge all the kind comments from everyone. I'm very, very appreciative And some of the old timers caused me to reminisce. When I started As CFO, it was 1989.

Speaker 2

And in those days, we didn't do this. I was Investor Relations, and Tammy is laughing because I had to beg her 5 years into this to come bail me out, but I did the Investor Relations. We had the CFO, we had a Controller, and we had a Treasurer, And we're cheap now, but we were really cheap then. So we had one assistant that supported all three of us and I did the Investor Relations. So we would send out we had this auto fax

Speaker 8

system where we would fax out You

Speaker 2

know the press releases and then some of you would be really angry with us because you were at the bottom of the facts list, which meant that you were I don't know how long this damn thing It was not instantaneous, so put it that way. And then I would talk to each analyst individually on the phone. And then when I couldn't take it anymore, I said I begged Tammy to come over from leading financial reporting To come to Investor Relations for the very she was the very first Investor Relations professional in the history of Southwest Airlines, And she modernized all of the things that we enjoy today. It took a while for her to beat that into me, but she eventually did. The other thing you caused me to reminisce on is Tammy, who was and is a star, she moved on to other jobs And hired Marcy.

Speaker 2

And then, Marcy moved on to other jobs and now we hired Ryan. And that's pretty remarkable. In 33 years' time, we've only had 3 people, 3 different people leading Investor Relations. So I'm very proud of you guys. And for all my friends here, I will tell you and I've told all my Southwest colleagues this, I learn more from doing Investor Relations than I learn going to school.

Speaker 2

And the questions that you all have, the ideas, the way you challenge, Me, at least, over the years, has been invaluable and not to mention the very rich Friendships that we had, Helane will remember, and this I think I was controller at the time in the late '80s, we would do a show At the big Shearson, Lehman, Hutton Investor Conference, which was multi days and people would come, they would stay You know, for days and then Southwest would put on this Broadway like parody Of the industry, we pick on Frank Lorenzo especially, who is a good friend of mine, by the way, and Crandall and others. But, Helane, I remember the 1st year that you came on working for Bob Jodiek, we parodied you and We had an actor walk across the stage. I don't remember the song, but we had we anointed Elaine, Ms. Shearson Lehman Hutton, because she added a lot of glamour to the sales side analysts community And to this day. But in any event, I am very grateful for the friendships, Very blessed to have been in a really great company for 36 years.

Speaker 2

And I just heard this morning that I knew Parker was Retiring in March, and I didn't translate that into, well, that means that this is his last analyst call and I was told that He reported that he has done between being CEO and CFO, 107 of these quarterly things. And I did the math on mine, and I want every one of you to know that it's 134 for me. So not that I'm keeping score with Parker, But I will leave you all with that and leave Southwest Airlines in great hands. And as you all know, I'm not going anywhere. We got There's work to do, and I'm going to be here doing my little part.

Speaker 2

So, Ryan, thank you very much. Back to you, sir.

Speaker 1

Well, that's fantastic. Thank you for Sharon, of course, you are a legend, and I think you're the goat, not

Speaker 3

a goat, but the goat.

Speaker 6

All right. So we'll sign off here, and that

Operator

Thank you. Ladies and gentlemen, we will now begin our media portion of today's call. I'd like to first introduce Ms. Linda Rutherford, Executive Vice President, People and Communications.

Speaker 5

Thank you, Chad. We can go ahead and get started with the media portion of our call today. I just want to welcome everyone. And you can go ahead, Chad, if you want to just give them instructions to get queued up and we'll get started.

Operator

Certainly. Thank you. Thank you. And the first question will come from Kyle Arnold with Dallas Morning News. Please go ahead.

Speaker 15

Thanks. I was wondering with those 5,000 COVID calls that you had in January, how much of a fallout are you seeing from Are all of those individuals being sick themselves? Are you guys seeing much fallout from family members or from schools Being closed, daycare, those kind of other hiccups that we're seeing in the economy?

Speaker 7

Kyle, those were all people that had tested positive for COVID themselves. They weren't not coming to work because of some family issue. They tested positive and reported a positive COVID to us.

Speaker 3

And Kyle, the good thing too is the different than Delta, The cases came on really quickly. So the rise was alarming, but on the other side, the fall in the cases was similar. So the wave was very narrow, which was painful on the front end, helpful on the back end because we got people back a lot faster than Delta.

Speaker 5

Yes. The only thing but no doubt everything that you mentioned Kyle, I'm sure we were incurring to. It's just been an incredibly challenging time for everyone. So all the additional demands that household I'm sure impacted that, which is be it caring for a spouse or child or You know a school closure are just dealing with everyday lives. So I think that would be on top of The numbers that we shared with you.

Speaker 3

Appreciate that.

Operator

The next question will be from Leslie Joseph from CNBC. Please go ahead.

Speaker 5

Hi. Good afternoon, everyone. Thanks for taking my question. With your hiring for 2022, I was wondering how much of those how many of those people are Replacing other workers and net, where do you expect to end up in headcount by the end of the year? And overall, do you expect salaries To be lower than 2019 before the pandemic, as junior workers are coming in.

Speaker 7

So Leslie, the 8,000 number that you hear, that would be the net increase in our full And then one of the benefits that you do get From hiring people as you do get to average down the scale increases in the contract. And we've got about, like I said earlier, about 40% of that group will be flight crews, 40% will be ground ops. All of those are covered work groups. And so I do think we'll have an opportunity on our wage rates as we have Newer people come in to average those down. I haven't looked and see what that means exactly as compared to 2019 And we'll just that's a good question.

Speaker 7

And Leslie, I think Okay.

Speaker 5

And then overall your I'm sorry, go ahead.

Speaker 3

Well, just to yes, one thing embedded in your Maybe. And then just the numbers on the totals, I think, maybe you were implying, so what is it an add and what's happening to attrition? Our attrition is up during COVID, our attrition is up modestly, but it's not up alarmingly, which is a good thing. But sort of back to the numbers, I I think we're ending we ended at 'twenty one at roughly 55,000 active employees. You add the 8,000 plus, So the plan would be to end 2022 at about 63,000, 64,000 active.

Speaker 11

Okay. Thank you.

Speaker 6

You're welcome.

Operator

The next question will come from Allison Snyder with Wall Street Journal. Please go ahead.

Speaker 5

Hi, thanks so much. I think we've probably asked about this pretty much every quarter, but just curious what you're hearing or what you're picking up about The mask mandate, and the likelihood it would get extended, yes, just curious how you're seeing that playing out in a couple of months?

Speaker 2

Hey, Allison. Well, yes, I don't believe there is any current discussion about Extending or terminating the mask mandate, I think it's well established Once you're onboard the aircraft, the environment is very healthy with the continuous air refresh. Adding the mask is an added layer of safety. And given the fact that we are right in the midst of this omicron surge, Now is not really the time to revisit that question

Speaker 5

in our

Speaker 2

opinion. And I think that's representative of the A48 We survey our customers, and there are still a significant number of customers who Feel safer with the mask. There will come a time when the mask won't be necessary. I think we'll all look forward to that. But Now, not right now is not the right time.

Speaker 5

And I guess if I could ask one about hiring and just kind of the challenging labor market. In addition to the minimum wage increase, just curious if there's anything else you all are doing. I know last year, we talked about kind of making on Spot offers and doing all these job fairs. Are you are there any other kind of creative tactics you're having to utilize to bring in all these people?

Speaker 3

Yes, Allison, I think in the current tough environment, you use every lever that you have. And so obviously, you've seen us move our Starting wage rates along from sort of where they were to 15% to 17%, in some airports, there were even 20% at this point. We've got a team that's worked very hard on the processes. So how can you take steps out of the process? So if it took I'm just making this up, but if it took 30 days Get from interview to hire, can we get that to 10 or 8?

Speaker 3

Because the longer that process is, the more you run the risk That person takes a job somewhere else. We are doing instant offers in some cases, as you mentioned. We're using different techniques To get people quote into the funnel of hiring, so a lot of social media, a lot of mining for information. So I would just tell you, We're using every lever out there because it I mean Southwest is a wonderful company. We get our share of resumes and interest, but it's just tougher than normal.

Speaker 3

And so we're turning over every rock in terms of what we can do And a lot of that is, yes, it's about pay and it's about pace.

Speaker 5

Thanks so

Speaker 3

much. You're welcome.

Operator

And the next question will be from Dawn Gilbertson from USA TODAY. Please go ahead.

Speaker 16

Hi, good morning. Gary, you mentioned 1989, I want to sound a little bit like Jamie Baker here, but I'm in possession of a Gary Kelly, Vice President of Finance, Business Card. I'm wondering maybe I can monetize it through an NFT or something. Wanted to wish you well.

Speaker 6

Thank you, Dawn.

Speaker 2

I remember all the rough interviews I had to suffer through with you.

Speaker 16

Couple of questions here on the traveler front. First pretty quickly on the March to May flight cuts, could someone Put that capacity decrease into the number of daily flights for me and tell me like how much of that business is already on the books? In other words, how many people are you going to have to notify again about schedule And then more importantly on the new fare category. Bob, I'm wondering, I think Andrew mentioned, We're not going to take anything away from Wanna Get Away. And I'm wondering if you're willing to go on the record to say, I mean, with something like Offering people who buy 1 get want to get away 1 bag instead of 2, is that taking something away?

Speaker 16

And on a related front on that, I'm trying to figure out what could you guys add that you don't always have and my mind goes to early boarding. So are you considering adding early boarding, the early bird feed to that second fare category? Because I know you in some tests a Couple of years ago, you called it Wanna Getaway Plus. And if you do include Early Bird in this new fare category, would Early Bird Has an ancillary item go away?

Speaker 3

Dawn, I'll let Andrew come back to the flight count. But yes, so you need to join our marketing team Because you probably put everything that we've looked at on the table, but no, I'll just tell you, yes, it's just too early to give away exactly what For a lot of reasons, competitively, we're not ready to reveal exactly what that fair product looks like. Andrew is right, we're not taking anything away. It's going to be very attractive in terms of where it's positioned. I think it will be what you would expect from Southwest Airlines in terms of

Speaker 6

And just to double down, we will not take anything away from 1 to get away. So there'll be one getaway of something above it, but we will not take anything away

Speaker 2

if we

Speaker 6

want to get away. And then for the flight counts, the March flight counts have already been prosecuted. So those who have already been handled, the April through May have not yet been published. So that's what we mentioned in the press release and in our conversation We're in the process of doing that. So we don't have a flight count yet to give you on that.

Speaker 6

Those we expect to have prosecuted in a couple of weeks' time.

Speaker 2

So it will be well in

Speaker 6

advance of travel and be less But

Speaker 2

the bookings out that far are

Speaker 3

pretty much. Yes.

Speaker 6

The bookings during COVID generally skew closer in. And so what we have that far of the book is modest, so there will be some customers impacted, but it will be a modest number of Cristone and will advance.

Speaker 5

If If

Speaker 16

I can ask one very quick follow-up on the new fare category. What are you going for there? And I know it will vary by route, etcetera, etcetera, but Obviously, this is a revenue initiative you've been talking about for a few years. What are you going for in terms of the fair differential average fair differential between

Speaker 6

What we've done over the pandemic, if you look At our website, you'll see more modest step ups between Wanna Get Away at Anytime and Business Select. And we think that has had a laudatory effect on our revenues. We like more modest step ups compared to what was perhaps there a number of years ago. So having a 4th one that comes in there, We would desire to have at the end 4 products with modest step ups in between with features that customers will really pay that modest step up for. So it's designed to be pro consumer

Operator

Thank you. And the next question will come from David Zlodnick from TPG. Please go ahead.

Speaker 10

Hello, good afternoon. Thanks for the question and congratulations again, Gary. I wanted to know if there is any update on when you're planning to bring back

Speaker 7

So we had planned to bring that back around the middle of February, and we ended up because of the Omicron Virus and just making sure that we had enough separation in the cabin for room, we delayed that. And then so we're looking at that here sometime in late in Q1, maybe early in Q2.

Speaker 5

Okay. Thank you.

Operator

Thank you. And the next question will come from Mary Schlangenstein from Bloomberg News. Please go ahead.

Speaker 5

Hey, thank you. I wanted to ask 2 quick questions. The first is, you've said in the over the past year that you hope to add a total of 25,000 workers Over 3 years, I wanted to see if you still think that's a realistic number or if that's one you will have to increase. And the second question is for Gary. Gary, is there something that you were unable to accomplish in your years as CEO that you would like to see Bob Take on and accomplish.

Speaker 3

Well, let me take the just take the hiring. And again, sometimes you have to separate gross hiring and net because we always have attrition. But the 8,000 as you think about our growth going forward, the 8,000 per year that we're talking about here for 'twenty two, I can see that persisting. We've got a lot of into the future, in future years, we've got a lot of aircraft coming this year. We've got 114 in our plan.

Speaker 3

We've got a lot of work to do to restore our network back to what it was in 2019. I think, Andrew, we're roughly 75% restored at this point, it's my memory. So there's a lot of work to do to add back depth after we opened the 18 cities. Beyond that, we have I mentioned this in my remarks, we've got a lot of growth opportunities. We're picking up Substantial Gates in Denver and Phoenix and Baltimore and Nashville and others.

Speaker 3

And so all of that will take aircraft And all of that will take employees. So is it exactly 25,000 over 3 years? I can't tell you that, but it You sort of take the $8,000 in 2022 and extrapolate that, and it's a significant number.

Speaker 2

And Mary, I hadn't really thought about the way you asked the question, but it is a wonderful question. I think the As we think about Southwest Airlines and year 51, it is so much Stronger and better prepared than at any point in time in our history. And I think back 18 years ago, we had a lot of challenges. It was post-nineeleven and the world was just different. There was a Just from away from short haul travel to longer haul travel, we weren't necessarily well prepared for that.

Speaker 2

And a lot of things needed to be retooled And still retain the essence of Southwest Airlines, which I feel like we've been able to do. The speed of change in today's world is just faster than it was 20 years ago. And So I would wish for Bob that we have a better Technology platform in place compared to 18 years ago that would enable Faster and more tactical like decisions. For us, anything that we wanted to do that was different And the 2000s meant years and 1,000,000 in terms of construction. So it became a really significant strategic choice About which road you took when you came to the fork.

Speaker 2

So I think we have a much more settled and stable strategic outlook today, Which I know that both of us Bob is impatient and I think that that is a good and a bad Thank you for a CEO, but certainly, he is urgent and has been a Huge contributor, of course, to getting us to this point and laying out the direction that we're headed. So it's not like these are new ideas for Bob. He's been working on this I think the one thing that I am grateful for looking back is that the things that we decided to do, We had a very supportive Board. We had willing and eager employees to embrace the change, and we were able to fulfill the visions that we And that's pretty rare. A lot of things you try, they don't work or for whatever reason they get derailed.

Speaker 2

And for us, we were pretty much able to do just about everything we wanted to do. There's a couple of things that we Engage that we set aside code sharing as an example that eventually we'll come back to. But You look at the things that were accomplished and it's a pretty mighty list there. So he has got just as ambitious a list going forward. Mike He is detailed with a few words, but there is a lot of depth to what Mike's strategy is for ops And it's just critical to our future.

Speaker 2

So, hats off to the technology and the business leaders who have gotten us to this point. We are in a far better place today than we were then. And I think we are as I said, I think we are extremely well positioned Certainly for the next 5 years and beyond. I'm very excited and I'm very enthused and I know Bob is too.

Speaker 5

Thanks very much, Gary. Good luck going forward.

Operator

Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Ms. Rutherford for any closing remarks.

Speaker 5

Chad, thank you. And I just wanted to add, Gary, you know that you had many hats to wear In the roles in the last 18 years and on behalf of the communications team, just really wanted to thank you for being our Chief Spokesperson. You've made our jobs easy and we appreciate and love you. And with that, if you all have any further follow-up for us, you can reach Communications team at 214-792-4847 or via the media website at www.swamedia.com. Thank you.

Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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