Southwest Airlines Views 2022 As A Transition Year

Southwest Airlines is taking a cautious approach to the recovery. Speaking on the carrier’s third-quarter earnings call, its executives stated they are considering 2022 to be another “transitional year.” However, there are still signs that Southwest is getting back up and running, given that it has exercised options for Boeing 737 MAX jets.

Southwest Airlines 737-800
Southwest Airlines is planning a transitional 2022. Photo: Getty Images

Southwest Airlines plots a transitional year

Speaking on the carrier’s third-quarter earnings call, Bob Jordan, current Executive Vice President at Southwest, stated the following on how he views 2022:

“While we’ve made considerable progress from a year ago and are pleased with the recent improvement in travel demand trends, it is clear that 2022 will be another transition year in the pandemic recovery. The restoration of the network is a top priority in ’22 and ’23 but it will take time, and it will be largely dependent on the pace of recovery of business travel, and our ability to staff. Even with the anticipated cost headwinds in ’22 related to significant inflation and productivity shortfalls, our primary goals next year are to deliver increased operational reliability, generate solid profits and margins, and restore and grow the route network while reducing our carbon emissions intensely.”

Southwest’s thoughts on 2022 come after facing some high-profile and expensive cancellations just a couple of weeks ago. The airline attributed this to a variety of issues that snowballed into a larger operational disruption. However, a critical shortfall that has hit Southwest, and some other airlines, is staffing. Southwest has been aggressively trying to hire to support the ramp-up of its operations.

Southwest Getty
Southwest Airlines faced an aggressive ramp-up this summer, but at times it was stretched too thin. Photo: Getty Images

It has not released its capacity plans for 2022, but it is clear that Southwest is starting to bring its operations back. In the first quarter of 2022, the airline expects its capacity to be down 6% from the same quarter in 2019.

By the end of the year, Southwest will have added 18 new airports to its network. This is one of the most ambitious expansions the airline has ever launched. Buoyed by plenty of spare available aircraft thanks to the return of the 737 MAX and a route network lacking much of the business-backed schedule depth, the airline has been adding new cities in a bid to offer more routes on which to earn revenue and keep its planes flying.

Building back the schedule has been challenging

Building back Southwest’s schedule has proven easier said than done. Especially given the staffing challenges Southwest has seen at some of its critical stations, the airline has little room for error when multiple issues strike the airline at once. A recent example is the cancellations just from a couple of weeks ago.

Southwest attributed it to a variety of issues. With a sizable portion of its fleet and crew touching Florida, some air traffic control-related delays, and later some weather coupled with a limited crew reserve, the airline’s operations took a sizable hit that took a few days to recover. Considering the heavy utilization of Southwest’s planes, the delays and cancellations stacked up, and crews ended up in cities they were not supposed to end their flying for the day in. As a result, the carrier pulled down flying for the fourth quarter.

Southwest 737 MAX
The Boeing 737 MAX will be key to building back Southwest’s schedules. Photo: Getty Images

Next year, Southwest will not just be rebuilding the schedule but building a route map that is also structurally different. So, while Southwest will be about six points shy of 2019 capacity levels in the first quarter, it has devoted a significant amount of capacity to its 18 new stations plus Hawaii. Earlier this year, Southwest stated that 92 jets were dedicated to those stations. To put it in context, this is just under 13% of Southwest’s total fleet count.

These new routes and stations mask the lack of schedule depth. Southwest is still not back to flying a heavy schedule of short-haul business markets. Mr. Kelly described on the airline’s last quarterly earnings call that people would be the big question in rebuilding the network and growing back the parts of the network that rely more on business travel.

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Fleet transition

In the third quarter of 2021, Southwest exercised eight Boeing 737 MAX 7 options for delivery in 2022. On October 1st, Southwest exercised another eight options for the MAX 7 for delivery in 2023, bringing the airline’s firm order book for MAX jets to 399, split between 250 MAX 7s and 149 MAX 8s. The majority of these planes will replace older 737-700s.

Southwest Airlines Views 2022 As A Transition Year
Southwest Airlines only flies the MAX 8 for now. Photo: Vincenzo Pace | Simple Flying

Southwest will still be taking some planes to grow its route network back to 2019-levels of depth. The carrier is making some early moves on options for 2022. The bar is quite low for Southwest to exercise its 737 MAX options. If Southwest exercises all of its options for 2022, it will take 114 MAX aircraft next year – all the smaller MAX 7.

The airline only has MAX 7 aircraft scheduled for delivery through the end of 2025. These planes add a marginal capacity compared to the Boeing 737-700s currently flying for Southwest. However, they are more fuel-efficient than the -700s.

Leadership transition

Perhaps one of the more striking changes in 2022 at Southwest will be the retirement of Gary Kelly. Mr. Kelly became CEO of Southwest Airlines in 2004. Southwest has made some big moves during his tenure, including merging with AirTran and taking on the Boeing 737 MAX. He has been adamant about ensuring the airline continues its policies of letting bags fly for free and maintaining open seating through his tenure.

Southwest Airlines
CEO Gary Kelly will be retiring early next year from his role as CEO. Photo: Getty Images

Mr. Jordan has indicated that he has little appetite for changing the DNA of the airline. Southwest has immense brand loyalty as a result of these customer-friendly initiatives. Ultimately, running an airline like Southwest – especially coming out of an ambitious year of growth and making strides on operational reliability. Next year will be a transitional year for Southwest in more ways than one.