by The airline industry as well as the whole world was kept grounded after the Covid hit in March 2020.
Finally, some heightened security flights were available in 2020, but relatively few people were willing to take the risk. So it came as no surprise when the International Air Transport Association confirmed that 2020 was the industry’s worst year on record.
Demand quickly picked up again when the vaccines became available in 2021, but from then on it was hardly smooth sailing (or smooth flying) as luggage kept getting lost and flying became more expensive than ever, with the Ticket prices rose by 25% due to a variety of factors from inflation to labor shortages to sky-high fuel prices.
But in his recent earnings call, Southwest (LUV) – Get the Southwest Airlines company report announced a change that should please customers while signaling that there is still more work to be done.
What change has Southwest made?
One of the biggest issues for travelers (and airlines, to be fair) is that flight cancellations have become far more common, especially this summer. For example, hundreds of flights were canceled over the weekend of July 4th.
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 just bad weather, a perennial problem.
But the main factors these days are rising fuel prices, Covid case rates, air traffic control issues and staff shortages. The airline industry in particular is struggling to find enough pilots. That’s because many pilots have retired or been on furlough during the pandemic, while many of the pilots who haven’t left are suffering from record fatigue.
If flights are cancelled, customers have a legal right to a refund. However, many customers opt for a future flight credit instead.
The problem is that there is often a time limit on when these credits can be used, which doesn’t always work with people’s schedules. Also, people’s travel plans change for all sorts of reasons and they may not be able to use that travel credit within a year.
But on the second-quarter earnings call, Andrew Watterson, Southwest’s executive vice president and chief commercial officer, announced that travel credits will no longer expire.
“We are also removing the expiration date of all currently valid and unexpired flight credits, including travel credits issued when customers changed their travel at the start of the pandemic that 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 it’s one of the key differentiators of our brand. Repeat purchases from engaged customers are a cornerstone of our business model and our success. Our customer research and feedback tells us that flexibility has become even more important to customers over the past two years.”
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Southwest is looking for more pilots
Elsewhere in the investor call, CEO Bob Jordan said that in the second quarter, “operating income increased 13.9% from the second quarter of 2019 to an all-time high of $6.7 billion,” adding, “It’s just an incredible turnaround from last year, not to mention a quarter ago.”
He attributed the push to a sustained surge in demand, which appears to be rising, although jet fuel prices and labor shortages have meant the supply of planes has not been able to keep up, pushing up airfare costs.
Jordan struck a bullish note on investors, but still acknowledged that the airline industry is far from over the hill.
“I admit there’s a lot of noise out there right now. It seems we all know someone who has this latest strain of Covid, the inflationary pressures are real and they are worried about a possible recession,” he said.
“Consumer and business sentiment has fallen and there are data points that could indicate early signs of a slowdown. But so far demand remains strong and we have not seen any material impact on our business.”
Jordan stated that “we currently expect to be profitable for Q3 and Q4 as well as for the full year 2022.” He also said that the flight experience is on the upswing as the company “reached pre-pandemic staffing levels in May 2022, which is just a big milestone.”
The main goal for the company right now is to get enough pilots, which has been a struggle. With more than 640 pilots retiring during the pandemic, fewer pilots are 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 restart our hiring machinery” and it has already hired 7,000 people since last year.
“About 75% of these hires were for our airport operations and about 20% for flight crews. We will continue to hire staff,” he said.
In addition, Van de Ven said the company plans “to build some staffing pad and buffer in the aviation environment we are all in” to reduce the number of flight cancellations.
“We are still affected by Covid diseases and a higher proportion of inactive employees. Our sickness rates are still elevated in some of our workgroups.”
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