Recently retired Southwest Airlines CEO Gary Kelly has already predicted that 20% of the business travel market may never return after the pandemic. But it is certain that this prognosis could turn out to be too pessimistic. The carrier is seeing a faster return of road warriors than it might have expected.
Recent bookings have overturned Southwest Airlines’ once-gloomy view of returning business travel, with March business revenue topping March 2019. The Dallas-based airline is revamping its network away from some of the leisure-focused destinations on which she has focused in the depths of the pandemic to trade markets as she prepares for the return of the Road Warriors.
Former CEO Gary Kelly, who resigned earlier this year, said he believes around 20% of business travel will never return after the pandemic recedes, due to the changing nature of work and tools like videoconferencing. He still hasn’t returned in full, but is recovering faster than the airline expected. Business travel revenue in March was only 36% lower than the same month in 2019, compared to 70% below 2019 in January. Southwest is reducing the number of flights it operates to and within Hawaii and reallocating those resources to short-haul flights in business markets.
Importantly, Southwest is restoring flight frequencies between cities. The airline was known before the pandemic for the volume of flights it operated between two points on its route map — like Denver-Chicago, for example. These frequencies – known as “schedule depth” in the airline industry – have allowed the airline to re-accommodate passengers in the event of cancellations and have bolstered the airline’s reliability, essential for business passengers. Although schedule depth won’t match 2019 levels until later this year, it has become Southwest’s focus this year. The airline said it needs about 125 planes to restore depth to its schedule.
To do this, of course, Southwest needs staff. That has been the biggest constraint to Southwest’s recovery, CEO Bob Jordan told analysts during the company’s first-quarter earnings call on April 28. The carrier had struggled to hire and train front-line workers when it resumed hiring in the fall of last year. It has changed the way it hires by advertising jobs on social media, for example, and offering “instant deals” at the end of an interview with a successful candidate, chairman Michael Van de Ven said. airline plans to hire 10,000 people this year, and 8,000 a year for at least the next two years.
And although unlike many of his peers Southwest has been successful in attracting talent, it’s struggling to train all those new employees, Jordan said. The carrier is due to hire 1,200 pilots this year, to replace the 640 who retired during the pandemic, but it doesn’t have enough flight instructors to train new recruits fast enough. Southwest needs to hire about 35 flight instructors to train its pilots this year, and to go beyond that, needs to hire up to 60. “Every airline is looking for flight instructors now,” Jordan said.
In all workgroups, new employees go through the training pipeline and learn their job, a process that takes time. Van de Ven estimated that it takes between six months and a year for a new employee based at the airport to become proficient at their job. Although Southwest has hired thousands of people, they are not yet at peak productivity. As a result, Southwest is maintaining its capacity – the number of flights it operates – at around 7% less than in 2019 in the second quarter.
It is cautious this year despite the increase in demand. Last summer, when demand started to skyrocket, Southwest did not have the staff available to function scheduled time or to recover from delays caused by bad weather. This summer, Jordan said the carrier learned its lesson and was carefully watching to match capacity to its ability to execute, not just demand.
Southwest is expected to be profitable in the first quarter. This was not the case, thanks to the spread of the Omicron variant. The airline posted a net loss of $278 million, compared to a profit of $387 million in 2019. First-quarter revenue was $4.7 billion, down 9% from 2019. But the surge in demand in March, as well as forward bookings for the summer and beyond, give the carrier confidence for the rest of the year. Southwest expects to be profitable again from the second quarter and for the full year.
Southwest is rare among US airlines to cover its fuel costs. The carrier is reaping the benefits now, as jet fuel prices are among the highest in 10 years. The airline’s hedge portfolio will earn it $1 billion this year and protect it from oil price volatility caused by the war in Ukraine. “Our fuel hedge provides excellent protection against rising energy prices and significantly offsets higher market prices for jet fuel in the first quarter of 2022,” said Chief Financial Officer Tammy Romo.