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Southwest reduces capacity to facilitate operations

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Southwest Airlines has “modestly” cut its capacity plans following operational challenges in recent weeks, even as the airline reports that demand has improved, including from its corporate travel customers.

For the third quarter, Southwest followed an “aggressive” capacity plan, approaching its pre-Covid-19 levels in terms of available seat miles, said President and CEO Gary Kelly. At the same time, Southwest’s staffing “fell below plan,” which was a major factor in operational problems during the quarter, which culminated in a weekend of over 2,000 cancellations earlier this month due to the cascading effects of the weather and an air traffic control stop in Florida.

“We’ve gone from not doing enough to doing a lot in a very short period of time,” Kelly said Thursday during Southwest’s third-quarter earnings call.

Southwest now plans to operate about 92 percent of its capacity compared to 2019 in the fourth quarter. His previous estimate had it operating about 95 percent of its pre-pandemic capacity for the quarter. The airline is more than halfway from its goal of hiring about 5,000 new employees by the end of the year, but is planning capacity for 2022 based on “more conservative staffing assumptions,” Kelly said.

Like the other US carriers, Southwest saw better demand in July that was derailed by the spread of the Covid-19 delta variant in August and September. Southwest executives estimated that the increase cost the airline about $ 300 million in revenue. Total operating income in the third quarter was $ 4.7 billion, down 17 percent compared to the third quarter of 2019.

Revenue from managed business travel fell into the lower range of 60 percent compared to 2019 levels in July and August, but then fell to 73 percent in September, said executive vice president and chief commercial officer Andrew Watterson. October, however, has shown “steady improvements” in managed commercial reserves, and Southwest expects them to continue to improve modestly in November and December to close the year down 60 percent, it said.

“This estimate is less optimistic than the one we shared before the impact of the delta variant, as many corporations delayed opening their campuses until after the new year, but we remain cautiously optimistic about the overall improvement in business travel throughout the year. long end of the year “. Watterson said. “We believe that there is pent-up business demand, and there is a possibility that we will see it recover at a faster rate as we approach early 2022.”

South west went live in Saber’s global distribution system at the end of July, completing its entry into the top four GDSs that it started the previous year. Since that coincided with the emergence of the delta variant, it is difficult to quantify the impact so far, but Southwest is already seeing “some channel change” to the GDS from direct channels after the start with Saber, Watterson said. Southwest expects its larger corporate clients to use a combination of GDS, direct channels and the Swabiz corporate booking tool according to the traveler, he said.

Kelly also answered several questions about the Covid-19 vaccine mandates during the call. Earlier this week, Southwest said it would not put employees on unpaid leave if they remain unvaccinated by their previous December announcement. 8 term. Kelly said the airline is having talks with the federal government, including reconciliation Upcoming U.S. Department of Labor Rules, which will require vaccinations but has a testing option, and the requirements for federal contractors, They do not have a trial option, but were adamant that the carrier would not fire any employee who did not want to be vaccinated, exempted or otherwise.

He added that he did not expect decisions about vaccination requirements to affect operations, despite Warnings from United CEO Scott Kirby On Wednesday, airlines relying on Covid-19 testing programs for unvaccinated employees could face a sudden shortage of staff.

“We are not going to interrupt travel, and the White House has made it clear that they never want to interrupt travel, let alone during vacations,” Kelly said.

Southwest Airlines reported net income of $ 446 million for the third quarter, which included $ 776 million in federal payroll support. Excluding that and other special items, the airline had a net loss of $ 135 million for the quarter, compared to an adjusted net loss of $ 1.17 billion in the third quarter of 2020.

RELATED: Southwest Second Quarter Earnings

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