Demand is high, but a pilot shortfall and aircraft delivery delays continue to constrain growth at Southwest Airlines.
“I think we have a couple years where demand and supply won’t be as aligned as pre-pandemic,” chief commercial officer Andrew Watterson said during the company’s third-quarter earnings call on Thursday.
Still, the carrier expects flight levels in pre-pandemic markets to be 90% restored by next summer and fully restored by the end of 2023.
Southwest’s most immediate growth restraint remains a shortage of pilots, though the carrier is on track to meet its target of 1,200 pilot hires this year and 2,100 pilot hires next year, CEO Bob Jordan said.
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Delays in aircraft deliveries remain a secondary issue. Southwest had been contracted to take delivery of 114 Boeing 737 Max planes this year, but now expects to receive just 66 to 68 of those planes due to Boeing supply chain delays as well as the slower-than-expected certification process for the smallest Max variant, the 737-7 Max.
Despite those challenges, Southwest expects that it will fly just 2% less capacity than 2019 in the fourth quarter.
During the second quarter of 2023, Southwest expects to fly 14% more capacity than a year earlier, when Southwest was enduring operational challenges.
Restoring frequencies to the 2019 level will require Southwest to be substantially larger than it was before the Covid-19 crisis transformed the airline industry. That’s because the carrier pivoted away from high-density business routes during the first year-and-a half of the pandemic while introducing 18 new destinations. Serving those destinations utilizes 125 planes out Southwest’s 742-aircraft fleet, the carrier said.
Currently, frequency levels are at approximately 85% of the 2019 level in Southwest’s pre-pandemic markets.
In particular, frequencies remain down on Southwest’s longer city pairs. Over the summer, the airline chose to allocate proportionally more flying to short-haul routes, primarily because operational recovery on difficult days is easier when a schedule is more loaded with short flights. During the third quarter, Southwest’s average flight was 12% shorter than a year earlier.
Those changes, Watterson said, helped the carrier restore operational reliability. So far this month, Southwest has canceled 0.9% of flights and has an on-time rate of 79.9%, according to FlightAware. Those numbers are improvements from July’s cancellation rate of 1.4% and on-time rate of 30.9%.
The carrier laid out its network-restoration plan while reporting Q3 net income of $277 million. Southwest achieved record Q3 revenue of $6.2 billion, in line with analyst expectations, according to the investment website Seeking Alpha. That revenue was offset by expenses of $5.8 billion, an increase of 20.7% over 2019, due largely to higher labor costs and a spike in jet fuel prices.
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