Southwest Airlines has updated its financial guidance for third quarter 2022 based on current booking trends and the company's current outlook. Southwest expects operating revenue to be between a 9-11% improvement over the third quarter of 2019 – a slight change to previous expectations of between 8-12%. Capacity will remain flat compared with 2019 but fuel costs are expected to rise by $3.25-$3.35 per gallon.
Southwest has a multi-year fuel hedging program to provide insurance against spikes in jet fuel prices with significant fuel hedging protection in 2022. As of September 8, 2022, the fair market value of its fuel derivative contracts settling in fourth quarter 2022 was an asset of approximately $163 million, which would bring full year 2022 fuel hedge benefit to approximately $945 million. In addition, the fair market value of fuel derivative contracts settling in 2023 and 2024 was an asset of approximately $381 million and approximately $104 million, respectively.
Southwest has approximately $54 million in scheduled debt repayments in third quarter 2022. In addition, as of September 8, 2022, the airline had redeemed the outstanding $1.2 billion principal amount of all of its outstanding 4.750% notes due 2023; extinguished $148 million in principal of the its convertible notes for a cash payment of $193 million; and extinguished $329 million in principal of various other unsecured notes for a cash payment of $339 million, which brings year-to-date total debt principal repayments to $2.2 billion.
Southwest reports strong travel demand for the Labor Day holiday and added that it continues to experience strong revenue trends in third quarter 2022. Leisure revenue trends remain elevated compared with 2019 levels and are currently exceeding Southwest’s expectations for third quarter 2022. The airline added that the strength in advanced bookings offset softer close-in booking trends for business travel for the period from late July through August 2022, relative to expectations.
Additionally, managed business revenue trends are reported to have improved, thus far, in September 2022, relative to August 2022, with an estimated 8 to 10 point sequential improvement, compared with their respective 2019 levels. July and August 2022 managed business revenues were down approximately 26% and 32%, respectively, both compared with their respective 2019 levels.
Southwest now expects third quarter 2022 managed business revenues to be down in the range of 26% to 28%, compared with third quarter 2019 levels, compared with its previous estimate to be down in the range of 17% to 21%.
Although early in the booking curve, Southwest reports that it continues to experience strong revenue trends in fourth quarter 2022.
Southwest further added that its 2022 cost and capacity plans remain stable and in line with previous estimations, and its flight schedule was recently extended through April 10, 2023. The airline continues to estimate full year 2022 capacity to decrease approximately four percent, compared with 2019 levels.
Barring significant unforeseen events and based on current trends, Southwest continues to expect solid profits, excluding special items, in third quarter 2022, fourth quarter 2022, and for full year 20223.
As of September 8, 2022, Southwest had cash and short-term investments of approximately $14.4 billion, well in excess of debt outstanding 48%, and it remains the only US airline with an investment-grade rating by all three rating agencies.