Southwest Airlines has reported third quarter 2021 net income of $446 million, or $.73 per diluted share, which was driven by a $763 million offset of salaries, wages, and benefits expenses related to the receipt of Payroll Support Program (PSP) proceeds. Excluding special items, Southwest’s third quarter net loss was $135 million, or $.23 loss per diluted share, with operating revenues of $4.7 billion, which was down 17.0% compared with third quarter 2019. The airline ended the third quarter with liquidity of $17.0 billion, well in excess of debt outstanding of $11.2 billion.
"Third quarter 2021 was a challenge for us, operationally,” said Gary C. Kelly, Chairman of the Board and Chief Executive Officer. “Despite the deceleration of traffic in August and September due to surging COVID-19 cases, the third quarter 2021 demand and revenue performance was quite strong and a dramatic improvement from a year ago. That was a bright and encouraging sign of recovery, and I was especially pleased with July's revenue and profit performance. We were aggressive with our capacity plans for third quarter 2021, coming close to pre-pandemic third quarter 2019 available seat miles. Our active (versus inactive) and available staffing fell below plan and, along with other factors, caused us to miss our operational ontime performance targets, and that created additional cost headwinds. The net effect, including a revenue penalty of $300 million due to the COVID-19 surge, was a loss of $135 million, excluding special items.”
"We have reined in our capacity plans to adjust to the current staffing environment, and our ontime performance has improved, accordingly. We are aggressively hiring to a goal of approximately 5,000 new Employees by the end of this year, and we are currently more than halfway toward that goal. Our 2022 capacity planning reflects more conservative staffing assumptions, as well, all compared to historical norms. With respect to our fourth quarter 2021 revenue outlook, while there are lingering effects from the summer COVID-19 surge and recent operational challenges, we are encouraged with renewed momentum in leisure and business traffic, revenues, and bookings—especially over the holidays. Except for higher fuel prices, fourth quarter 2021's overall results are trending better than third quarter 2021.”
Although less severe than prior waves of rising COVID-19 cases, Southwest estimated that the negative effects associated with the Delta variant have impacted August and September 2021 operating revenues by approximately $100 million and $200 million, respectively. “Despite the demand deceleration, third quarter 2021 operating revenues and revenue passengers reached 83 percent and 87 percent of 2019 levels, respectively, which is meaningful progress and a strong indication of the pent-up demand for air travel. Revenue and booking trends began to significantly improve in the second half of September 2021 as COVID-19 cases declined”.
For October 2021, despite the improvement in revenue and booking trends, Southwest expects operating revenues to be negatively impacted by $40 million due to the lingering effects of the Delta variant and an estimated $75 million negative impact as a result of flight cancellations from operational challenges experienced earlier this month and related Customer refunds and gestures of goodwill. Despite these headwinds, and based on current bookings, Southwest’s guidance for October 2021 operating revenues remains unchanged. Business revenues continue to lag leisure revenue trends, however.
Southwest ended third quarter 2021 with 737 Boeing 737 aircraft, including 69 Boeing 737-8 (-8) aircraft. During third quarter 2021, the airline took delivery of one -8 aircraft and does not expect any additional deliveries in 2021. As of September 30, 2021, 24 -700 aircraft remained in temporary storage due to fourth quarter 2021 capacity remaining below fourth quarter 2019 levels. Southwest stated that it still expects to return one leased -700 aircraft to the lessor in fourth quarter 2021, and recently made the decision to accelerate the retirement of eight -700 owned aircraft from 2022 into fourth quarter 2021, for a total of 18 retirements in 2021. The company expects to end 2021 with 728 total aircraft.
During third quarter 2021, Southwest exercised eight Boeing 737-7 (-7) options for delivery in 2022, and on October 1, 2021, it exercised another eight -7 options for delivery in 2023. Including the options exercised on October 1, 2021, Southwest’s order book with Boeing contains 399 MAX firm orders (250 -7 and 149 -8) and 252 MAX options (-7 or -8) for years 2021 through 2031.
Southwest’s third quarter 2021 capacity increased 46.4 percent, year-over-year, due to increased flight activity driven primarily by increased leisure passenger traffic, but decreased 1.6 percent compared with third quarter 2019. Fourth quarter 2021 capacity is expected to remain below fourth quarter 2019 levels, and the airline has adjusted its published flight schedule for December 2021.
Southwest has $16.0 billion in cash and short-term investments, and a fully available revolving secured credit facility of $1.0 billion. The airline continues to have unencumbered assets with an estimated value of more than $11.0 billion, including aircraft value estimated in the range of $9.0 billion to $9.5 billion, and approximately $2.0 billion in non-aircraft assets such as spare engines, ground equipment, and real estate. In addition, Southwest states that it has significant value from its Rapid Rewards loyalty program – possibly indicated that could be leveraged in line with its US rivals to raise more funds if required.