Southwest Airlines conceded it will not fully restore pre-pandemic capacity levels in 2022, revising down a previous forecast that the airline would operate 100% of 2019 capacity this year, citing ongoing staffing issues.
Dallas-based Southwest is now planning for full-year 2022 capacity to be down 4% versus 2019. “Our planned flight schedule adjustments take some capacity upside optimism off the table for this year,” CFO Tammy Romo told analysts and reporters during an earnings call to discuss Southwest’s $1.27 billion 2021 net loss.
Southwest’s 2021 fourth-quarter capacity was down 8.3% versus 2019 and full-year 2021 capacity was down 16.1% compared to 2019.
Outgoing Southwest CEO Gary Kelly said the near-term impact of the omicron variant of the coronavirus and the longer-term impact of staffing shortages are why 2022 capacity has been rolled back. “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,” he said, noting Southwest plans to add a net 8,000 employees this year. "We have a very aggressive plan to go hire people,” Kelly said.
Incoming CEO Bob Jordan, who will take the reins of the LCC on Feb. 1, said the 2022 capacity cut will “provide additional buffer for the operation.”
While omicron is affecting near-term demand, Jordan said the full-year capacity reduction is more about insufficient staffing than concerns over demand. “If you look at our fleet today, our ASMs are constrained based on our staffing,” he explained. “You probably have 5-6% of the fleet that is effectively unflown. In other words, we could be generating 5-6% more ASMs with the current fleet but for the staffing.”
The carrier’s revised 2022 capacity plans appeared to surprise analysts on the earnings call. “You're cutting four points ... As I think about the math, it just seems like you are taking a lot out,” Deutsche Bank airline analyst Mike Linenberg told Southwest executives. “You did say you're being cautious and it's all about returning the integrity of the operations back to normalcy. It does feel like it's extra conservative.”
Jordan said the carrier has to be realistic about how quickly it can hire enough workers to fully restore capacity. “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,” he said, adding: “To me, the moderation [in capacity] is all about staffing, not because of any concern over demand.”
Kelly emphasized that the airline has been making capacity adjustments regularly during the pandemic and is not ruling out increasing capacity as the year moves forward. “I expect we'll make great progress in 2022 and will enjoy another much improved year,” he said. “We preserve the ability to work on our capacity for the back end of 2022. We just don't know yet. 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 cushion … We need pilots, we need flight attendants, we need ramp staffing.”
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