‘It may be till 2022 before we see sustained profitability:’ Southwest CEO

Southwest Airlines CEO Gary Kelly joins Yahoo Finance to discuss COVID’s effect on Southwest’s Q3 earnings, how the company plans to attract workers, and the company's adjustment to combat inflation.

Video transcript

- And we were talking about Southwest earnings, which we learned this morning in the third quarter. Better than the Street expected. It was a loss, but smaller than the Street thought. It was $0.23 per share versus $0.26 per share. On revenue, which was better than the Street expected, $4.7 billion. And that revenue, by the way, compared to the same quarter in 2019 is down about 17%. If you gauge this against the other airlines, that's stronger than what we've seen from United and Delta. But let's talk about all of this with CEO Gary Kelly, who joins us now to talk about what comes next for the airline as we head into the fourth quarter. Good to see you, Gary.

GARY KELLY: Great to be with you.

- I want to start real quick with the third quarter. We go that the COVID spike put a damper on flying, ticket bookings, and cancellations. But the quarter was still very strong. Had the COVID spike not occurred, would you have been profitable or are the fuel costs eating into the margins?

GARY KELLY: In third quarter, I don't think there's any question that had we maintained our momentum that we were seeing in July, that we would have had a handsome profit. And of course, we didn't. But the good news in all of that is it is encouraging in that that core earnings capability is there. And the second thing, of course, is it's all dependent upon revenue performance.

We can't cut costs to profitability of that magnitude. So just moving from second to third quarter and seeing that increase in demand was really, really encouraging. And it's continuing on here into the fourth quarter. Even though we've moderated some of our capacity plans in fourth, I'm still expecting a good healthy revenue performance.

- In fact, I'm going to quote from the report, in which you said we're encouraged with renewed momentum in leisure and business traffic, revenues, and bookings, especially for the holidays. Can you make a commitment-- I realize that there are still 2 and 1/2 months to go-- will you be profitable in the fourth quarter? And what are you seeing specifically with those increase in bookings and business that's coming back?

GARY KELLY: First of all, on the profitability, we did say in the release that we expect to lose money again. I think one of the bigger headwinds from third to fourth quarter is the increase in jet fuel prices. And that's unfortunately, in the hundred plus million range in terms of a cost headwind.

But, you know, right now, we're just trying to stabilize the operation. Much like the broader society that we live in, people returning-- people are returning to the workforce very gradually, and we're experiencing that at Southwest. You know, I heard the prior conversation you were having about not hiring, and we're experiencing the same thing. So we're seeing a little bit higher attrition, higher access to leaves, a little bit higher absenteeism. And, you know, people, they're still struggling through this pandemic. So we just need to be mindful of that.

We still have airplanes that aren't flying. We've got 24 that are on the ground. We need them in the air. So we can drive the revenues to cover our fixed cost, if you will. So they're obviously very expensive assets to be sitting on the ground. So I'm very hopeful that we're on the right trajectory here, but it may be '22 before we see sustained profitability.

- I want to ask you about the hiring goal of 5,000 by the end of the year-- the way you point out in the report, you're halfway there. But before we get there, are you going to have to raise ticket prices? Are you considering that? I know Delta and United are considering it in order to help deal with the spike in fuel prices.

GARY KELLY: Well, we love being the low fare leader, and we always like to say we're America's low fare policeman. But I can't really tell you what our future pricing actions might be other than we want to keep our costs low and keep our fares low. We don't charge bag fees, don't charge change fees.

- I think you just had a new announcement of a $58 flight, so yes, I think you still do have the title of the low cost carrier policeman. But let me ask you this-- hiring of the 5,000 people by the end of the year. You talk about the issue that happened at the beginning of this month with the flight cancellations, and I've seen other interviews where you've pointed out the way that you route flights, it's a linear direct kind of process, not a hub and spoke.

But this quarter, it's already having a negative impact of $75 million by the refunds and the things you're doing for the passengers who are inconvenienced. How do you rebuild the brand loyalty? I mean, you were named number one among customer service by Newsweek in the low cost carrier field. How do you maintain that after that kind of setback?

GARY KELLY: Well, we haven't lost it. That was one event, and it was not-- it was not a good experience for our customers nor was it a good experience for our employees. And it wasn't triggered by us-- I think that's the frustrating thing. This was an air traffic control issue in Florida according to the FAA, because they had limited staff on top of severe weather. So it really set us back for a couple of days and our folks did a great job recovering over a couple of days. But still affected a number of customers.

Our bookings look strong. The holiday travel looks in line with where we were in 2019, even. So you know, we just have to get out there and win customers over every day. And when we goof up, we fess up, and we apologize, and do everything we can to hold on to them and get them to come back. But we just need to do everything we can to minimize those kinds of things so that most days, customers' experiences are like what we're having today. We got a great operation underway today and a lot of happy customers.

- And you are free to move about the country-- or is it roam about the country. I always get the taglines wrong. But Gary Kelly, CEO from Southwest. Thank you so much for joining.