Southwest ‘Confident’ in Managed Business Trajectory

Southwest ‘Confident’ in Managed Business Trajectory

Southwest Airlines’ managed business revenue improved from the third quarter to the fourth, and from the fourth quarter into the new year, and the carrier expects another sequential improvement for the first quarter, Southwest chief commercial officer Ryan Green said on a Thursday earnings call.

In addition, close-in bookings, including managed business bookings, performed at the better end of expectations in November and December, driving fourth-quarter unit revenue to outperform Southwest’s previous guidance, according to the company.

“We’re definitely on track,” Green said. “How we finished the fourth quarter and then what we can see here in the first quarter and going forward makes me very confident. … We’ve got very strong bookings in place on the managed business side for February as we begin to get into that part of the curve. I think the overall macro-environment sets up well for us having a really good year.”

Green added that during 2023 Southwest gained more than three points of market share in the managed business space compared with the end of 2022.

The fourth quarter also marks the one-year anniversary of Southwest’s disruptions during the 2022 holiday period. “I’m pleased to report that we saw no bookings impact from last year’s operations disruption, which speaks to the operational improvements we have made over the last year, as well as the enduring loyalty from our customers,” Green said.

Southwest president and CEO Bob Jordan noted the new winter weather action plan the carrier created after last year’s incident has already been “successfully tested” in multiple winter weather events, “including the extended nationwide winter storms we experienced this month, but also with other types of disruptions such as hurricanes, severe fog in Chicago and the Maui fires.”

“Through all those events, our aircraft and crew networks remained stable,” Jordan said. “We recovered quickly, and we were able to minimize the impact on our customers.”

Q4, FY 2023 Metrics

Southwest reported total fourth-quarter revenue of $6.8 billion, a 10.5 percent increase year over year. Passenger revenue was up 12.1 percent for the period to $6.2 billion. Full-year 2023 revenue was nearly $26.1 billion, up 9.6 percent from the prior year. Passenger revenue for the year was $23.6 billion, representing a 10.4 percent increase. Both the quarter and full-year revenue figures were records, according to the company.

Still, the carrier reported a net loss for the fourth quarter of $219 million, nearly equal with last year’s $220 million quarterly loss. For 2023, Southwest had net income of $498 million, a drop of 7.6 percent from 2022.

Average fuel costs for the quarter were $3 per gallon and $2.89 for the full year. Southwest projects first-quarter fuel costs to be $2.70 to $2.80 per gallon, and $2.55 to $2.65 for the full year.

The carrier plans to increase first-quarter capacity about 10 percent year over year. Southwest expects second-quarter capacity to increase 8 percent to 10 percent versus Q2 2023, and third-quarter capacity to increase 3 percent to 5 percent year over year. Full-year capacity is projected to increase 6 percent.

“We made rapid adjustments to capacity for both 2023 and 2024 and put in place significant network adjustments in response to changing demand patterns,” Jordan said. “These changes reduced our planned 2024 year-over-year capacity increase to roughly 6 percent, all of which is carryover from 2023 network restoration. So, there will be no net new additional capacity in 2024 as we work to mature our route network.”

Southwest in 2023 received 86 Boeing 737 Max 8 aircraft during the year and retired 39 aircraft. For 2024, there is “continued uncertainty around the timing of expected Boeing deliveries and the certification of the Max 7 aircraft,” Southwest CFO Tammy Romo said.

In October, the carrier placed an order for an additional 108 of the new jets, bringing its orderbook to more than 300. Southwest is planning for 79 deliveries and to retire 49 planes for the coming year. “Our 2024 capacity plans do not currently include any Max 7 flying,” Romo said.

Jordan addressed an analyst question regarding whether it was considering changing its model of an all-Boeing fleet following the grounding of the 737 Max 9 aircraft after a door-plug incident Jan. 5. Southwest does not fly the Max 9 model.

“The Max 8 is a great aircraft; we’re very satisfied with it,” Jordan said. “Like Boeing, we support the work of the FAA and the oversight to improve quality, address any issues, because at the end of the day, a better Boeing is good for Southwest Airlines. … You have to understand, there’s no such thing as being able to de-risk all of this. … So, the best thing that we can do is work with Boeing to make them an even better company, which is exactly what’s happening.”

RELATED: Southwest Q3 performance

Source link