Southwest Airlines Company

Good day and welcome to the Southwest Airlines first quarter 2022 conference call. My name is Chad and I will be moderating today's call. This call is being recorded and a replay will be available on southwest.com in the investor relations section. After today's prepared remarks, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. At this time, I'd like to turn the call over to Mr. Ryan Martinez, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Chad, and thank you all for joining us today. In just a moment, we will share our prepared remarks and then open it up for Q&A. Joining me on the call today, we have our CEO, Bob Jordan, Executive Vice President and CFO, Tammy Romo, Executive Vice President and Chief Commercial Officer, Andrew Watterson, and President and Chief Operating Officer, Mike Vandervan. A quick reminder that we will make forward-looking statements today, which are based on our current expectation of future performance, and our actual results could differ substantially from these expectations. Also, we had a few special items in our first quarter results, which we excluded from our trends for non-GAAP purposes, and we will reference these non-GAAP results in our remarks. Please see our press release from this morning and our IR website for more information, our cautionary statements, and our non-GAAP reconciliation for more detail. With that, Bob, I'll turn it over to you. All right. Well, thank you, Ryan.

Hello, everybody. Thank you for joining us today. Well, the first quarter was a tale of two really different environments. As expected, we incurred losses in January and February due to the negative impacts of the Omicron variant. We anticipated travel demand would rebound in March, and we were pleasantly surprised at how quickly it bounced back and the extent to which demand and booking surged. While we reported a Q1 loss, we were solidly profitable in March, actually not too far off of March 2019's profit. And while modest, I'm very pleased that first quarter unit revenues increased as compared to 2019. That was the first quarterly increase since the onset of the pandemic. So but for the Omicron impact, we would estimate that we would have been profitable for the first quarter. In the first quarter, total operating revenues were 91% restored to 2019 levels, despite Q1 managed business revenues being only 45% restored. Looking forward, we are very encouraged with the bookings and revenue trends we are experiencing for Q2, which indicate operating revenues will be fully restored to quarterly record levels on stronger leisure and business demand. Our revenue initiatives continue to roll out, and Andrew will cover our new fare product in more detail, but we look forward to launching that this quarter and getting another one of our revenue initiatives in place and producing value. We will have another meaningful fuel hedge gain in Q2, and we remain well protected with our fuel hedge portfolio in the second half of this year. Despite higher-than-normal unit cost inflation and productivity drags from underutilizing our assets, We expect to be solidly profitable for Q2 through Q4 and for the full year 2022. We are currently forecasting a healthy profit for Q2 with solid operating margins. Now, of course, this is based on our current outlook and barring any unforeseen material events, such as another wave that would impact or temporarily slow our progress. But we see no signs of that at this point. It just goes to show the power of our business model and how well our people are managing through a very difficult environment. Our marked results and our current outlook for Q2 represent tremendous progress in our recovery. Even if we aren't fully expected to be optimized with our network fully restored until the end of next year, I'm just really, really proud of our people for their progress today. We've come a long way. I'm just very thankful for their constant resilience. Now, key to our recovery is our continued hiring progress. And we now plan to hire and add over 10,000 new employees to the Southwest family this year. And that's net of expected attrition. By the end of this month, we will have welcomed roughly 6,500 new employees in 2022. And that's 5,000 net of attrition. And I'm just really pleased with our hiring progress. We continue to work through lower available staffing and training constraints to keep pace with rebounding travel demand. And we recently reduced our summer flight schedules to match our capacity guidance as we prioritize our operational reliability. I believe we have already accounted for the impact of staffing constraints in our full year 2022 guidance on capacity of down 4% versus 2019. But of course, if we need to trim more capacity, we certainly can, but I'm cautiously optimistic that we can get to a good balance of headcount to operate our planned flight schedules for the remainder of the year, while setting ourselves up for resuming more material growth in 2023. You've heard me mention these things before, but we remain focused on a few key priorities for this year. First, getting properly staffed and focusing on our people. Second, making progress toward our historic operational reliability and efficiency. Third, providing our legendary hospitality. And fourth, returning to consistent profitability. You know, it takes all 59,000 employees working together to execute on these focus areas and deliver a low-cost, high-quality product with low fares and great customer service. That's what our people are good at, and they've been good at that for 50 years, and they just do an incredible job. It's a tough environment, and they've been through a lot. I'm so grateful for them and what they do each and every day. Together, we're making tremendous progress to put this pandemic behind us. And while coming out of the pandemic has proven to be messy, as it was coming into the pandemic, I can assure you that we are very hard at work here at Southwest Airlines to make this company even stronger. And I remain very optimistic about our future. And with that, I will turn it over to Tammy.