Southwest Turns Quarterly Profit, Says Worst of Omicron Is Over

But Southwest said the Omicron variant will likely derail its previous expectation for a profitable start to 2022. The new variant has slowed both leisure and business travel, and Southwest expects that to reduce operating revenue by $330 million in January and February.

Adding to the variant’s price tag, Southwest said staffing woes when many employees were out sick earlier this year—combined with bad weather—led to 5,600 flight cancellations so far in January. The company said that is expected to reduce operating revenue by $50 million for the month, which will show up in first-quarter earnings.

Like other airlines, Southwest said bookings have started to recover—it expects to shake off Omicron’s impact and to stop losing money again in March. The airline said it still expects to be profitable in 2022 as a whole.

“With Covid-19 cases trending downward, the worst appears to be behind us, and we are optimistic about current bookings and revenue trends for March 2022,” said Bob Jordan, who is set to take over as chief executive officer next week.

Rivals American Airlines Group Inc., Delta Air Lines Inc. and United Airlines Holdings Inc. all reported losses in recent weeks and said the Omicron variant had dimmed their prospects, at least temporarily.

Airlines including Southwest have been retooling to avoid the kind of snafus that dogged them last year, when carriers scrambled to rebuild their staffs and spool up operations to catch up with demand that accelerated more quickly than they had planned for.

Southwest offered incentive pay to many employees through early February to help stabilize its operation as Omicron ripped through its workforce—a move that will cost it an extra $150 million during the first quarter.

The airline is also aiming to hire at least 8,000 workers this year. To help attract and retain employees, it’s raising starting pay to $17 an hour, after boosting its minimum hourly wage to $15 last year.

At the same time, Southwest is once again throttling back its flying plans in the first half of this year to give itself more buffer to recover from unexpected events. While it previously planned for flying capacity this year to be higher than in 2019, when the pandemic began to decimate travel, Southwest’s 2022 capacity is now expected to be down 4% from that year.

The result will be higher expenses per seat mile the airline offers, a measure of unit costs. Southwest said it now expects such operating expenses, excluding fuel, to be 20% to 24% higher than in 2019, up from the company’s previous guidance of a 10% to 14% increase.

Southwest said it believes those expenses will ease after the first quarter as it restores the majority of its route network by the end of next year.

Alaska Air Group Inc. also reported a fourth quarter profit of $18 million on Thursday, while JetBlue Airways Corp. reported a loss of $129 million.

“While Omicron has temporarily weighed on demand in the very near-term, we expect sequential month-on-month improvement through the quarter, ultimately returning to sustained profitability in the spring and beyond,” JetBlue Chief Executive Robin Hayes said. “Furthermore, were it not for Omicron, we believe we would have generated higher revenue this quarter than in the first quarter of 2019.”

Southwest posted quarterly profits throughout 2021 but until the final three months of the year, those results were boosted by government aid that covered airline workers’ salaries. Excluding one-time adjustments, Southwest reported a profit of $85 million in the fourth quarter.

The company’s adjusted earnings of 14 cents a share in the quarter compared with a loss of $1.29 a share a year earlier. Analysts surveyed by FactSet were looking for adjusted earnings of 7 cents a share.

Write to Alison Sider at [email protected] and Will Feuer at [email protected]