Southwest Airlines says omicron will drive a first-quarter loss but expects 2022 profits

Southwest Airlines expects to lose money in the first quarter after the omicron variant of Covid-19 hurt staffing and bookings, but it said profits are on the table by March and for the rest of the year.

Southwest’s rivals Delta Air Lines, United Airlines and American Airlines earlier this month also said they expect that the fast-spreading variant would further delay a recovery in travel demand but that bookings for spring and summer were strong.

“While we made significant progress in 2021, the Omicron variant has delayed the demand improvement we were previously expecting in early 2022,” Bob Jordan, Southwest’s executive vice president who takes the reins as CEO on Feb. 1, said in an earnings release. “With COVID-19 cases trending downward, the worst appears to be behind us, and we are optimistic about current bookings and revenue trends for March 2022.”

Carriers had canceled more than 20,000 flights between Christmas Eve and the first week of the year, hit by a combination of bad weather and a lack of available crews as omicron spread through employee ranks and nationwide.

Both leisure and business travel bookings are weaker than expected and will likely cut operating revenue in January and February by a total of $330 million, Southwest said Thursday. For the first three months of the year, Southwest expects revenue of 10% to 15% below the first quarter of 2019, when it generated $5.15 billion.

Southwest and other airlines offered extra to crews to help ease staffing shortages and the Dallas-based carrier said that would extend into February.

Costs are also on the rise. Southwest said first-quarter expenses, excluding fuel, will likely rise 20% to 24% from 2019, up from a previous estimate of a 10% to 14% increase. The carrier is pulling back on its capacity plans for the first quarter, expecting to restore 91% of its pre-pandemic flying in 2019 compared with a previous estimate of 94%.

Southwest, like competitors, is on a hiring spree and has said it expects to add some 8,000 employees this year up from 5,000 last year. In its quarterly release Thursday, Southwest said it would raise starting wages to $17 an hour — up from $15 an hour it set as a floor last year.

Strong holiday bookings helped more than double revenue to $5.05 billion in the fourth quarter from $2.01 billion in 2020 and drove the carrier to a $68 million profit compared with a $908 million loss during the same period the year before.