The Dallas-based airline on Thursday posted a profit of $68 million, up from a loss of $908 million a year earlier, but still about 87% below what the company reported in the comparable period in 2019, before the pandemic began to decimate travel.
Still, the emergence of the Omicron variant has taken a toll, especially hitting operations in January. The company said it has canceled more than 5,600 flights so far this month, mostly because of staffing challenges related to Covid-19 and weather. The company said that is expected to drive an estimated $50 million negative impact to January 2022 operating revenues, which will show up in first-quarter earnings.
The impact from Omicron combined with softer-than-expected demand for business travel is expected to reduce operating revenues in January and February by $330 million, the company said.
“While we made significant progress in 2021, the Omicron variant has delayed the demand improvement we were previously expecting in early 2022,” said Bob Jordan, who is set to take over as chief executive next week. “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.”
The company said it expects to see first-quarter operating revenue 10% to 15% below pre-pandemic levels.
The emergence of the Omicron variant upended what airline executives had expected would be a smooth and lucrative holiday-travel season. Airlines canceled over 30,000 U.S. flights between Christmas Eve and Jan. 11, as Covid-19 infections ravaged airline workforces, and winter storms further derailed operations in many parts of the country.
As other major airlines provided quarterly updates this month, industry executives outlined how the spread of the new variant hampered the recovery of airlines, but insisted that demand for flying hasn’t been diminished, rather just delayed.
Delta Air Lines Inc. CEO Ed Bastian said the Omicron variant resulted in a roughly $75 million hit in the fourth quarter, including lost revenue from canceled flights and a slowdown in bookings. United Airlines Holdings Inc. said last week that it was scaling back its schedule in the first months of the year as a result of Omicron.
Omicron isn’t the only challenge airlines are facing as they navigate the recovery from the pandemic. Carriers are grappling with higher costs for fuel and labor as they struggle to hire pilots, flight attendants, mechanics and other workers to staff up after thousands of employees took buyouts and retired during the pandemic.
Southwest is staffing up by increasing its starting hourly pay rates from $15 to $17, as well as by making other investments, Mr. Jordan said. The company plans to hire at least 8,000 employees this year.
Those investments will come at a cost, pushing expected operating expenses per available seat mile, excluding fuel and oil expense, special items and profit-sharing, to a peak in the first quarter, according to Mr. Jordan. He added that the company is also seeing higher unit cost inflation.
Southwest increased its expectations for operating expenses, excluding fuel and oil expense, special items, and profit-sharing, saying that, on a unit basis, it is forecast to be 20% to 24% higher than in 2019, up from the company’s previous guidance of 10% to 14% higher.
Southwest anticipates those costs to moderate later in the year and into 2023, Mr. Jordan said.
The company expects to post monthly losses in January and February, returning to profitability in March, said Mr. Jordan, who attributed the losses to Omicron and winter weather.
“Based on our current plan, while we no longer expect to be profitable in first quarter, we expect to be profitable for the remaining three quarters of this year, and for full year 2022,” he said.
Southwest posted fourth-quarter revenue of $5.05 billion, up from $2.01 billion a year earlier but still about 12% below the comparable period in 2019. Analysts surveyed by FactSet expected $4.97 billion, according to FactSet.
The company posted 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 Will Feuer at [email protected]
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