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Late-summer COVID surge hurt Southwest Airline’s 3Q earnings

Updated October 21, 2021 - 9:05 am

Southwest Airlines executives say they badly miscalculated their ability to bounce back from the COVID-19 pandemic when their employees didn’t return to work as rapidly as expected.

“I will be the first to admit things were messy,” Southwest Chairman and CEO Gary Kelly said during the company’s third-quarter earnings call Thursday. “We did not live up to (customers’) expectations.”

Kelly also said he expects 2022 to be another recovery year for the airline, the largest commercial carrier operating at McCarran International Airport with about 39 percent of the domestic market share according to airport statistics.

Kelly was referencing a late-summer surge in COVID cases that not only affected airline operations but also hurt third-quarter earnings.

For the quarter that ended Sept. 30, Southwest reported net income of $446 million, 73 cents a share, on revenue of $4.679 billion. In the same period a year ago, the airline reported a net loss of $1.157 billion, $1.96 a share, on revenue of $1.454 billion.

“Our active (versus inactive) and available staffing fell below plan and, along with other factors, caused us to miss our operational on-time performance targets, and that created additional cost headwinds,” Kelly said. “The net effect, including a revenue penalty of $300 million due to the COVID-19 surge, was a loss of $135 million, excluding special items.”

Kelly indicated profits would have been higher if not for the surge. Net income included the “special items” — federal government payroll support program payments of $763 million.

The late-summer problems came prior to separate issues Southwest experienced earlier this month when hundreds of flights were canceled. The airline cited air traffic control and weather issues for those problems on the weekend of Oct. 9-10.

Kelly explained that the ATC and weather woes occurred in Florida but cascaded into the entire Southwest network because airplanes and crews had to be repositioned for flights farther north and west.

“We just don’t have enough people resources to match up with the effort required to operate flights and serve our customers,” Kelly said.

He added that he believes the company has a good strategy “with backbone and depth and that’s clearly on our work plan for 2022.”

Southwest has flown 8.6 million passengers to and from Las Vegas in the first eight months of 2021, a 27.6 percent decline from the same period in 2020.

Kelly indicated Southwest is working to solve staffing problems ahead of the busy holiday season.

An analyst for Moody’s Investor Services told Yahoo Finance on Monday that he expects holiday traffic to be affected by Southwest’s staffing and scheduling issues. Kelly disagrees, saying the airline has purposely reduced its capacity and number of flights to match employee levels as the airline builds back to pre-COVID levels.

“We have reined in our capacity plans to adjust to the current staffing environment, and our ontime performance has improved accordingly,” Kelly said. “We are aggressively hiring to a goal of approximately 5,000 new employees by the end of this year, and we are currently more than halfway toward that goal. Our 2022 capacity planning reflects more conservative staffing assumptions, as well, all compared to historical norms.”

Southwest Airlines stock shares, traded on the New York Stock Exchange, closed down 1.6 percent, 81 cents, to $48.66 a share in volume slightly above the daily average. After hours, shares continued to fall by 0.4 percent, 21 cents, to $48.45 a share.

Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on Twitter.