The airline industry, as well as the rest of the world, was put on the ground when the covid hit in March 2020.
Eventually, some flights became available in 2020 with improved security measures, but relatively few people felt like taking the risk. So it was no surprise when The International Air Transport Association confirmed that 2020 was the industry’s worst year ever.
Demand quickly picked up again when vaccines became available in 2021, but it was hardly smooth sailing (or smooth flying) from there, as luggage kept getting lost and flying became more expensive than ever, with ticket prices up 25%, due to factors such as ranged from inflation to labor shortages to the skyrocketing price of fuel.
But in its most recent earnings call, Southwest (LUV) – Get the Southwest Airlines Company Report announced a change that should please customers, while also signaling that there is more work to be done.
What change has Southwest made?
One of the biggest headaches for travelers (and to be fair, the airlines) is that flight cancellations have become much more frequent, especially this summer. Hundreds of flights were canceled over the Fourth of July weekend, for example.
No airline understands this headache better than Southwest, which had to cancel over 1,000 flights last October.
The reasons for these cancellations vary. Sometimes it’s plain old bad weather, a perennial problem.
But the main factors these days are rising fuel prices, covid case numbers, air traffic control problems and staffing shortages. The airline industry in particular is struggling to find enough pilots. That’s because many pilots retired or took leave during the pandemic, while the many pilots who didn’t leave are experiencing record levels of fatigue.
When flights are cancelled, customers are legally entitled to a refund. But many customers choose to take credit for a future flight instead.
The problem is that there is often a time limit on when the credit can be used, which doesn’t always work with people’s schedules. It’s also the case that people’s travel plans change for all sorts of reasons and they may not be able to use that travel credit during the year.
But in the second quarter earnings call, Southwest’s Andrew Watterson, executive vice president and chief commercial officer, announced that the travel credits will no longer expire.
“We are also eliminating the expiration date on all flight credits that are currently valid and have not expired, including those travel credits that were issued when customers changed travel early in the pandemic and would have expired next September,” he said.
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“We’re known for offering industry-leading flexibility across the board, and customers tell us that’s one of the key differentiators of our brand. Repeat purchases by engaged customers are a cornerstone of our business model and our success. Our customer research and feedback tell us that flexibility has become even more important to customers in the last two years.”
Southwest is looking for more pilots
Elsewhere on the investor call, CEO Bob Jordan said “operating income increased 13.9% over Q2 2019 to a record $6.7 billion,” adding “It’s just an incredible turnaround from last year, not to mention just a quarter ago.”
He attributed the increase to an ongoing increase in demand, which appears to be increasing even as jet fuel prices and labor shortages have meant that the supply of aircraft has failed to keep pace, thus increasing the cost of airline tickets.
Jordan struck a positive note for investors, while still acknowledging that the airline industry is far from out of the woods yet.
“I’ll admit it’s a lot of noise out there right now. “It seems like we all know someone who has this last bit of covid, the inflationary pressures are real, and they’re worried about a potential recession,” he said.
“Consumer and business sentiment is down, and there are data points out there that could indicate early signs of a slowdown. But so far, demand is still strong and we haven’t seen any significant impact on our business.”
Jordan indicated that “we currently expect to be profitable for Q3 and Q4 and for the full year 2022.” He also said the flight experience is on the rise, as the company reached “pre-pandemic staffing levels in May 2022, which is just a huge milestone.”
The main goal for the company at the moment is to secure enough pilots, which has been a struggle. With an additional 640 pilots retiring during the pandemic, there are fewer pilots available to help train new recruits.
Southwest plans to hire 10,000 new employees this year. Chief Operating Officer Mike Van de Ven said the company’s first step last year was to “rebuild and start our hiring machine,” and it has already hired 7,000 employees since last year,
“Approximately 75% of this employment was in our airport business and approximately 20% was in flight crews. We are going to continue to hire, he said.
In addition, Van de Ven said the company plans to “build some manpower cushion and buffer in the aviation environment that we all find ourselves in,” to reduce the number of flight cancellations.
“We are still affected by covid diseases and a higher level of inactive employees. Our sickness rates are still high in some of our work groups.”