Bob Jordan, CEO of Southwest Airlines, apologized again to customers for the disruptions to the airline’s services over the recent holidays during a fourth quarter earnings call. He said the carrier had been on track to produce a healthy fourth quarter profit prior to Dec. 21, when the disruptions began.
Despite that crisis, said Jordan, the airline “made tremendous progress in 2022,” adding, “we believe we still have a solid plan for 2023.”
Tammy Romo, CFO, said that as a result of the disruption, there was a negative after-tax net impact of $620 million from the disruptions, resulting in a fourth quarter net loss of $226 million. For the year, she said, the airline had a net income of $723 million, excluding special items. And despite the flight cancellations in December, said Romo, Southwest generated record fourth quarter operating revenues.
Speaking about the corporate market, Ryan Green, chief commercial officer, said that in the days following the disruptions, the airline was out talking to corporate travel managers “to make sure we had a really good handle on sentiment and what they were needing to hear from us.” He said those conversations have continued.
Green said managers “outlined the need for us to be open and transparent about our mitigation plans, what we’re doing to ensure that this doesn’t happen again, making sure that we have plans in place to take care of customers and that we keep them regularly updated.“
The vast majority of managers, said Green, say they do not plan to reduce the level of flying on Southwest this year. However, he said, there was a “hangover” effect in early January, with a slowing of corporate bookings. But he said February bookings are looking much stronger, and by March, said Green, the airline expects to be roughly back to pre-pandemic levels on the managed business side.
Meanwhile, an American Airlines executive on that company’s fourth quarter earnings call described a declining landscape for contracted business travel. Vasu Raja, chief commercial officer, said that about 25% of its business comes from traditional business trips, down from the 35% it had been historically. And within that 25%, he said, only about 5 to 7 percentage points are coming from contracted corporations. The rest are noncontracted, unmanaged businesses that are flying with American.
In terms of revenue, the company’s noncontracted business travel has recovered 100% to 2019 levels, said Raja, while contracted revenue is about 75% to 80% recovered. And he continued, “We also aren't building a plan based on a lot of that demand returning.”
Further, said Raja, nearly two-thirds to 75% of corporate contracts are not fulfilling the terms of their contracts “for understandable reasons.” He noted that some companies are still having trouble bringing people back to the office, and that a business day trip is now a harder sell. Same-day corporate business trips — which used to be 3% to 4% percent of the carrier’s traffic — are now less than 1%, he said. “That’s been out there for a while,” said Raja, “and we are planning that that’s going to be the new norm.”