During the early days of the covid pandemic, airlines went into self-preservation mode. Flights were slashed, employees were furloughed or laid off, and the entire industry went into a sort of hibernation.
Southwest Airlines (LUV) handled the unprecedented situation better than most of its rivals. It avoided layoffs but did see a number of pilots retire, which made its return to normal capacity a challenge. Now, the airline has come a long way back, but CEO Bob Jordan still sees some unique pressures on the business.
"Looking forward, demand continues to be strong," he said during the airline's second-quarter earnings call. "We continue to experience both inflationary pressures and headwinds from lower productivity and efficiency."
While the airline has met its staffing goals, according to the CEO, higher prices, increased wages, and ongoing fuel issues suggest costs won't be coming down any time soon.
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Southwest Is Wary About the Economy
Airlines have to take a long-range view. Prices in the industry are based on demand. That means you want to come as close to meeting ticket demand as possible without adding excess capacity.
Consumers, however, would prefer to see airlines add too many routes and have to resort to lower prices. Southwest appears to be being very careful when it comes to not doing that.
"Consumer and business sentiment is down, and there are data points out there that could indicate early signs of a slowdown," Jordan said. "But so far, demand remains strong, and we haven't seen material impacts to our business. As always, we'll continue to monitor the environment and be ready to respond if needed. It's helpful to remember that we have historically lagged in terms of impact to revenues going into a recession, and we have typically lagged recovery coming out."
Those are the remarks of a man being very careful to plan for at least a near-term future where customer demand may take a downturn. That likely means that on most routes, higher prices are here to stay.
Southwest Does Have Some Good News
While Southwest has been careful with expansion, it has been building back to where it was before covid.
"I'm really proud to report that we reached pre-pandemic staffing levels in May 2022, which is just a huge milestone. We continue hiring in specific areas, particularly for pilots, and we expect to add over 10,000 employees this year out of attrition," the CEO said.
Hiring means training, and in the case of pilots, it means having enough candidates with relevant experience. That means that you have view hiring as a long-term balancing act and Southwest appears willing to make that investment.
"We are benefiting from getting better staffed, getting new employees through training and on the front line, adding more short-haul flying to provide better network stability, and adding more flying between crew bases," Jordan said.
He did, however, acknowledge that problems remain.
"We know that we've got work to do on the efficiency side as we focus on 2023, and we're laser-focused on walking down fleet and capacity plans, moderating our overall hiring, optimizing staffing to flight schedules, ringing out cost inefficiencies and returning to our historic efficiency levels by the end of next year," he shared.
