Southwest Airlines CEO warns omicron could result in a Q1 loss

Southwest Airlines Co (NYSE: LUV) climbed 2.0% in the stock market on Thursday after turning its first adjusted quarterly profit since the start of the pandemic on solid demand for leisure travel.

Notable figures in Southwest Airlines’ fourth-quarter earnings report

Southwest reported $68 million in net income that translates to 11 cents per share. In the same quarter last year, it had lost $908 million or $1.54 per share. Adjusted for one-time items, the air carrier earned 14 cents per share.

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At $5.05 billion, its revenue jumped 150.9% in the recent quarter. According to FactSet, experts had forecast 7 cents of adjusted EPS on $4.97 billion in revenue.

Traffic was up 136%, and capacity grew 54.4%. Load factor surged from 53.8% to 81.0%, still shy of expectations for 82.0%. Economic fuel costs stood at $2.25 per gallon – an 80% YoY increase. Southwest expects it to keep at $2.25 to $2.35 per gallon in Q1.

Last month, Jefferies downgraded LUV to “hold”, citing higher exposure to inflationary pressures than peers.

Future guidance and CEO Kelly’s remarks on CNBC’s ‘Squawk on the Street’

Southwest warns that omicron might result in a Q1 loss but is confident that it will remain profitable for fiscal 2022 as a whole. On CNBC’s “Squawk on the Street”, CEO Gary Kelly said:

We’ll have a soft Jan and Feb, but March bookings look strong. In Q4, we had very strong traffic and yields, despite minimal business travel. We have a wonderful combination of low fares and great routes, great people, great aeroplanes, and great destinations. So, I’m really looking forward to 2022.

Southwest’s results were particularly impressive considering thousands of its employees came up with omicron in the fourth quarter. According to the chief executive, business travel is still down 50% from pre-pandemic, but that will shrink to 20% or even just 10% by the end of 2022. He added:

We must continue to hire, get our aeroplanes back in the air, and get them back to our pre-pandemic productivity. We’ve got a good plan for that. Demand seems very healthy. It’ll have peaks and valleys, but we were profitable in Q4 with both delta and omicron. So, it’s an environment we can manage.