Good day, and welcome to the Southwest Airlines Second Quarter 2021 Conference Call. My name is Chad, and I will be moderating today's call. This call is being recorded, and a replay will be available on southwest.com in the Investor Relations section. After today's prepared remarks, there will be an opportunity to ask questions. At this time, I would like to turn the call over to Mr.
Ryan Martinez, Managing Director of Investor Relations. Please go ahead, sir.
Thank you, Chad, and thank you all for joining us today. In just a moment, we will share some brief remarks and then open it up for Q and A. And you will hear from our Chairman of the Board and CEO, Gary Kelly Executive Vice President and incoming CEO, Bob Jordan Executive Vice President and CFO, Tammy Romo President, Tom Kneeland and Chief Operating Officer, Mike Vandevan. We also have a few other senior executives with us for Q and A, including Andrew Watterson, Executive Vice President and Chief Commercial Officer. We will make forward looking statements today, which are based on our current expectations of future performance and our actual results could differ substantially from these expectations.
We also had several special items in our Q1 results, which we excluded from our trends for non GAAP purposes and we will reference those non GAAP results in our remarks. So please see our press release from this morning and our website for more information on both topics, our cautionary statement and a lot of helpful information about our results and trends. And before we get started, I want to let you all know that we are planning an investor event in December And I will send out more information soon, so stay tuned for that. Now Gary, over to you.
Thank you, Ryan, and good morning everybody and thank you all for joining us for our Q2 Earnings call. We're obviously very delighted at the turnaround in our business from the previous 4 quarters of $1,000,000,000 losses And our revenues nearly doubled in the 2nd quarter from Q1 levels and that was on a capacity bump of 44%. Our revenues were much stronger than we had been forecasting just 90 days ago and all of that of course flowed through to better margins And better cash. Yesterday's cash was over $17,000,000,000 and that's plus a $1,000,000,000 line of credit, well in excess of our $11,400,000,000 of debt. So while our bookings and revenue trends are even better than the month of June and certainly better than Q2 as a whole.
We're very well prepared to manage and muddle our way through if the Delta variant And so far, we're not detecting any impact at all. Again, very strong bookings and revenue trends in the Q3. So right now I'm very pleased with all of that, very pleased with our revenue, our July business and the outlook for the rest of the quarter. This has been a long struggle to get to this point of profitability in the month of June. Pandemic of course turned everybody's world upside down and it's still not completely right side up, but I must thank our employees once again for their heroic and very hard work.
Normal summer demand is always a challenge to manage And it's of course even more so here in 2021, especially in June when we had technology issues And bad weather combined, it made it very difficult. Things are much better in July. Still not where I want us to be, But we'll continue to improve and I'm very confident that we'll adjust as necessary and if necessary. So our immediate focus is on running a very high quality on time airline and then gradually restoring our traditional efficiencies that are With our low fare point to point high utilization business model. Given the revenue recovery, obviously our next focus is To sustain our profitability that we've achieved here in June and maintain stability going forward, next We plan to resume new aircraft deliveries with the desire to restore our route network as needed to pre pandemic levels And clearly the network restoration will depend upon travel demand, which may in turn depend upon the state of the pandemic.
So worst case, we'll reduce our growth and early retire our oldest aircraft, which will be accretive to earnings with the trade out with the MAX. So we're very well positioned and very well prepared to manage pretty much any scenario here in the next couple of years. So things aren't back to normal yet, but Clearly, they have stabilized and are much improved and we're at a point now where we can actually plan and work on managing and spend less time on surviving the intensive care unit. And then finally, I did want to Congratulate and welcome Bob Jordan. He'll be our next CEO come February 1 next year and the reception so far has been terrific.
The transition work is well underway. Bob is very busy and he may comment on that, but it's going very, very well. Very proud of Bob. Is going to do a terrific job and I'm going to hang around to support our team in any way that I can. So with that, Bob, let me just turn it over to you.
All right, Gary. Hey, thank you and good morning everybody. It's really good to be with you today and I'm looking forward to reconnecting with many of you over the next few months as I begin to attend for Investor Relations activities. I'm going to make just a few brief remarks, but I'm just as Gary said, I'm just Super excited for the opportunity to serve Southwest as the next CEO beginning in February. And I am very glad that Gary will continue to serve as Executive Chair.
Many of you know Gary has been my mentor and friend for over 3 decades and the 2 of us along with Tom and Mike are already working very hard to ensure that the transition will be a smooth and orderly one. Since the announcement on June 23, I've had the chance to visit and talk with 100 of our employees around the company. As an example, I was in it got to spend the day in Atlanta yesterday with our wonderful team there. And I'm just amazed by their spirit, their enthusiasm, their heart for each other and for our customers and I'm just energized by being with them. I'm also focused on continuing to work with our leadership as we continue to lead through the pandemic recovery and as we start to work on our 2022 Planning efforts as we evaluate the post pandemic environment and the many, many opportunities that are ahead of us here at Southwest.
I've been part of the strategy here as we develop our strategy each year and I'm very confident about our purpose and vision and where we are headed. And I will be very purposeful in how we plan for the next several years. Our strategy is sound. We are a low fare, low cost growth airline That prides ourselves in terrific customer service and being a great place to work for our employees. That business model and our people Have been the enduring strength for 50 years now and we've enjoyed unparalleled success in the airline industry.
We now have the nation's most robust point to point network And we have at least a decade's worth of attractive growth opportunities in front of us with the Boeing 737. Our customer and brand rankings remain really high And our commitment to transparency continues with no bag fees and no change fees. We are committed to that. We have opportunities in the pipeline to continue enhancing the customer experience as just one example and that will be a focus. Along with our commitments to both diversity and leadership in the workplace and to environmental sustainability.
We will remain focused on maintaining our strong financial position and our investment grade balance sheet. As always, we'll balance our commercial opportunities, our operational We want new itineraries for our customers. We want growth opportunities and job security for our employees and we want to create significant value and returns for our shareholders. That formula has worked so well for Southwest for decades and I expect that it will be and continue to be what works for us for decades to come. We have a very deep bench of terrific leaders here at Southwest that are ready to lead for the future and as a team, we are all very aligned on the future of Southwest Airlines.
But I want to say above all, it's our people that bring our vision and our purpose to life every single day and I'm just Honored to serve them and to support them on a daily basis. And with that, I will turn
it over to you, Tammy.
Thank you, Bob, and hello, everyone. I will provide a quick overview of our overall financial results and some color on our outlook. On a GAAP basis, we generated a $348,000,000 profit in the 2nd quarter or $0.57 per diluted share. In addition to improving revenue trends, the primary driver of our GAAP profit for the quarter was the 724,000,000 of PSP proceeds that offset a sizable portion of salaries, wages and benefits expenses. Excluding this temporary PSP benefit and our usual hedge related special items, Our non GAAP net loss was $206,000,000 or a $0.35 loss per diluted share.
2nd quarter operating revenues, nonfuel operating costs, fuel costs and available seat miles We're all within our most recent guidance ranges and I am pleased with our overall financial performance in 2nd quarter. With the strong 10 up summer demand and a solid cost performance, June marked a key milestone as we generated both average daily core cash flow and profits as we had hoped. This is our 1st monthly profit since February 2020 when soon after the negative financial impact of the pandemic began to impact and this is excluding the benefits of PSP proceeds, which is more reflective of our base business. These 2nd quarter results, though not where we need to be, Represent a significant recovery for our business and are a testament to our amazing employees who are simply the best in the industry and make us proud each and every day. And by all indications, it appears that we outperformed the industry again in Q2.
We provided a lot of color in our press release regarding revenue and cost trends. I will just add that our trips flown are estimated to be down 11% in 3rd quarter compared to Q3 2019. And as such, we have several cost categories that are expected to continue to trend lower than 2019 levels, such as maintenance expense, advertising expense, Technology expenses and passenger and personnel related expenses. These Cost categories are expected to ramp up as trips and passengers increase and as we resume a more normal investment agenda moving forward. We are mindful of the tight job market as well as general inflationary pressures.
We expect to have wage rate inflation beyond our normal annual wage rate increases as we want to be competitive to retain and attract talent. Including the decision to increase the minimum hourly wage to $15 per hour across all work groups. We now estimate $5,000,000 to $10,000,000 of additional Salary, wages and benefits cost pressure in 3rd quarter and approximately $15,000,000 in 4th quarter. We are also mindful of bottlenecks, shortages and ramp up inconsistencies across the travel industry as we restart after more than a year of little activity and we are not immune. That said, we will continue our focus on ramping up costs along with flight activity as efficiently as possible, while being nimble to adjust and add where needed.
We are hopeful to generate net income again in 3rd and 4th quarters on a GAAP and non GAAP basis And our ability to do so will largely be dependent on the revenue environment, which Tom will cover in a minute. But based on our current revenue outlook and even with the additional cost pressures we noted, our 3rd quarter Bottom line outlook is over $200,000,000 better than it was back in April. We have flight schedules currently out through early January and we will continue evaluating growth opportunities And fleet and capacity decisions to construct the most efficient route network for 2022, Being mindful that our network has evolved from what it was pre pandemic. With Leisure travel levels where they are today, it is easy to forget that less than 6 months ago, the environment was drastically different. Over the past year, we were most focused on raising capital and building liquidity, minimizing significant cash burn and drastically cutting capacity and And the changes that we made to our network are producing the revenue we had hoped Are even better than hoped and we are now evolving our focus areas.
1st, We are focused on managing through the current environment with adequate resources to deliver a reliable operation. We then need to optimize our cost profile with our route network in 2022. And beyond that, we'll be focused on producing sustainable levels of profitability, margins and returns. We plan to continue managing the business closer in at least for the remainder of this year, but we have begun the 2022 planning process at a very high level. Although I don't have any Specifics to share with you today, I can reaffirm that we have tremendous flexibility, Perhaps the most flexibility we have ever had going into any year in my nearly 30 years at Southwest.
We have flexibility with our cost efficient Boeing order book with a significant number of MAX options remaining in 2022. We have flexibility in terms of where to deploy our aircraft in the network and how much capacity to fly in 2022. And we have a strong cash balance, modest debt requirements and discretion over how quickly We want to resume non aircraft investments in 2022. So we have flexibility with our capital. And aside from our people, our biggest core strength is our balance sheet and financial preparedness, Even coming out of this pandemic.
So with that, I will turn it over to Tom.
Okay. Well, thank you, Tammy. Good morning, everybody. Well, our 2nd quarter operating revenue performance was very much in line with our We saw improving monthly trends throughout the quarter in both leisure demand and yields and we also saw a steady improvement in business demand, which I'll talk about in just a minute. And we're also pleased to see broad based improvement across the entire network.
So this was not concentrated improvement in certain regions or cities, It really was across the entire system, which was terrific to see. June's leisure passenger traffic was actually higher than June 2019 levels And June's passenger fares were in line with June 2019 levels, very much as we expected. And we also saw significant improvement in business travel revenues as well, Moving from down 77% in May to down 69% in June versus 2019. Just keep in mind that on our Q1 call, we reported that our Revenues were down 88%. So throughout the second quarter, we saw a very steady sequential improvement in business travel from the Q1.
And just so you know, when I talk about business revenue, I'm really referring to Managed Business Travel. In terms of Q3 trends, we're continuing to see Strong leisure travel throughout the summer and as I said June's leisure traffic performance exceeded 2019 numbers and we're seeing that strength continue into July. In fact, we're estimating that both leisure traffic and fares will trend higher in July relative to 2019 based on trends that we've seen so far. And we're also seeing continued improvements in close in demand and yields for business travel as well. So in total that results in an improving July revenue outlook down 10% to 15% versus 2019.
In our earnings release, we also introduced our August revenue outlook of down 12% to 17% versus 2019, And we are estimating that August has a 1 to 2 point headwind compared to August of last year. And this is simply due to the calendar shift that pushes all of Labor Day into September. I think that when you adjust for the calendar shift, we're pleased with the way the booking curve is shaping up for the month and demand in fares are also shaping up really nicely for August. And this is very consistent with our expectations as we move from our highest leisure demand month, which is July by the way, into August. Now with respect to business travel, the recovery path is less clear, but it's also clearly improving.
So if you look back to Q1 and then to every month in Q2, we've seen sequential improvements over the past 6 months. So we're encouraged by what we're seeing and we're expecting a continuation of steady weekly improvements in business bookings. It's also very clear that more and more companies are returning to the office. You're seeing that. We're seeing that.
And without a doubt, we're also seeing the corporate travel restrictions are beginning to be relaxed We moved altogether, which is great to see. And as you'd expect, we're doing plenty of our own surveys with our travel management company partners and our business customers. So we're talking with them frequently, we're talking with them directly and we're very encouraged, but we're hearing from them, but we're also probably more encouraged actually by what we're seeing in terms of travel activity. So business volumes in fares were both down in the 2nd quarter, but both showed improvement in April, May June, and we're expecting sequential improvements in Q3 as well. We do expect overall yields will continue to be pressured in the Q3 versus 2019.
The booking curve So now it's mostly about improving volumes as the booking window tightens up. And I will say that and I'll just reiterate what Gary The guidance that we're giving today doesn't include any impact from the Delta variant. What I will say is that we have not seen any impact from the Delta variant at this point. So our outlook is based on trends that we're currently seeing, all of which by the way are very encouraging. Just a quick Comment or 2 on our Rapid Rewards and ancillary business.
We had a great quarter. We saw another strong performance in Q2 in both our Rapid Rewards loyalty program as well as in our Chase co brand credit card program. And we have more Rapid Rewards members today than we did in Q2 of 2019 and June was actually the highest new member acquisition month in the history of the program, which was terrific to see. And our co brand credit card program is larger now than it was pre pandemic and retail sales for Q2 were up nearly double digits versus 2019 And the spend per card also beat Q2 of 2019 levels. So as you can imagine, we continue to be very, very pleased with the strength and performance of our loyalty and card programs.
Our ancillary revenue trends such as upgraded boarding and early bird also performed extraordinarily well in the Q2, which is what we expect to see as load factors improve to historic levels. Just a quick comment on our GDS initiatives, which continue to roll out. And as you know, we've already gone live with Travelport and Amadeus And we'll be going live on Sabre on July 26, which is this coming Monday. This is a big accomplishment. It's been a tremendous amount of work.
It's a big deal and creates a big opportunity for us. And this does complete the implementation phase of our industry standard GDS works. So we now have a full array of distribution channels, which Our business customers are channel choice, whether it's a GDS platform or a Direct Connect API channel or our Swab Biz self-service platform. Without a doubt, our Southwest business team is pretty energized and pretty jazzed up. They have a great product to sell, we're the right channels and they are really focused on driving new business.
And now that the barriers are removed, there's a big opportunity for us to win more business, both from existing customers, Which by the way we have a lot of just under index as well as new customers. And this is a tough sell for us before moving to industry standard GDS platforms. So I think we're in a great position. We have a great business product. We have a great value.
As of Monday, we'll be in all the managed travel distribution channels. We have a great sales team. So I'm looking forward to all the progress we're going to make here. Just a quick comment on the network, Tammy alluded to it, but before I wrap up, I just want to talk about that a second, give just a bit of perspective, I'm sure we'll get into it in Q and A. And as you've seen, we've made some pretty meaningful changes and additions to our network Since the pandemic began 14, 15 months ago and over the past year, we've announced service to 18 new airports and at this point 15 of the 18 are now up and running.
And all the new markets are either performing within our expectations or ahead of our expectations and each one is a very strong, very natural addition to our network that we want to do for quite some period of time. And as you know, new stations have a development curve and we understand that and we get that And we are very pleased with where these stations are at this point. They'll have the time to develop. And as I said, all of them are meeting or exceeding our expectations. And we also have the objective, and again Tammy alluded to this, of restoring many of our pre pandemic routes and O and D frequencies, while also maturing the new markets.
So in terms of aircraft investments, our 18 new airports represent nearly 100 nonstop markets and over 280 new trips per day. And by the end of the year, they'll utilize roughly 55 aircrafts. And with our recent additions to Y, which really is the culmination of the original plan, which is Because of the pandemic, we're at 37 trips per day from the mainland U. S. To wide with nearly 40 inter island trips per day and that utilizes roughly 37 aircraft.
So we've committed substantial amounts of aircraft, the new city opportunities and to Hawaii and both investments are paying off and meeting our expectations, it was the right decisions. Our Boeing order book gives us a tremendous amount of optionality and that allows us to fund our current network investments while also allowing us to pursue the Plant restoration of our network, all which we'll be working through in our 2022 planning process that Tammy just alluded to. So I'll tell you, I think that we are very, very well positioned for the future. And with that, I'm going to turn it over to my friend, Mike, to talk about the operation.
Well, hey, thanks Tom and welcome everyone. From an operational perspective, I would say this is a pivotal quarter for us. We moved from How I would describe managing and moderating our operation in the Q1 to really an acceleration focus in the Q2. If you would compare just March to June those 2 months, we added about 650 additional daily trips. So that's a 25% increase.
And then our customer and bag volumes far surpassed that. They were up nearly double That was a 45% increase between those two months. And that is just a monumental increase and it was done in a short period of time. And inside an airport environment that I would say is really still adapting and everything in that environment seems to take a bit more time today. Our travel mix as you know has been reported is primarily leisure.
So our pre check customers from a TSA perspective We're down over 10% from as compared to June 2019. If you go out to the airport restaurants, A lot of them have reduced hours or staffing levels, so there are longer lines. The 3rd party providers for wheelchair services haven't been able to scale with customer demand. The hotel shuttle services are less frequent and of course the airport is one of the last experiences across the country where masks are required throughout the travel day. And considering all that, that's just a tough environment to live in every day and I am tremendously proud of our employees.
They continue to answer the call and they really are Southwest Warriors. And in fact, they produced a very solid second quarter operation. So in the midst of that increasing customer volume, we also launched service to 7 new cities. We rolled out our new maintenance IT system. We launched Hawaii service from Las Vegas and Los Angeles and Phoenix.
We expanded our existing Hawaii service and we accomplished all of that while delivering an on time performance of 76.3% And that was right in line with our 2017 through 2019 results pre COVID. The bag handling remained exceptional. It was our best quarterly performance outside of last year's Q2 when travel demand was really low. And we continue to leave the industry with the lowest Customer complaint ratio to the DOT for all the marketing carriers. So just again, I'm just very, very proud of our employees.
Now June was our most difficult month of the quarter. Our April May outperformed previous years in all of our key operational metrics. And even with the customer volume increase, June was off to a solid start. Mid month, we did run into a combination of availability concerns as well as delays and cancellations that impacted our customers and that dropped our OTP To 62.4 percent for June. And we need to and we will do better than that moving forward.
As we move through July, weather is still a bit of a concern as is the overall tempo of the airport environment. But the entire industry is feeling the impact of those things and that's reflected in the overall industry OTP thus far in July. We expect our operational reliability to continually improve from our June performance. We use planning models that require an adequate level Airplanes and people and facilities to run our schedules. As we entered into the Q2, we had all those resources aligned and we were on track until roughly mid June.
And so there are a couple of focus areas for the operation as we move forward. First, The passenger demand is very strong and our load factors going in and out of our large cities are 90 plus percent most days And we're still ramping up the operation and we have 16 fewer flights than we did in June of 2019, which for us means there are fewer ways to reaccommodate customers when we have delays or cancellations. Higher volumes and fewer re accommodation options translate for us into a longer operating day. So we're adding staffing And several of our large cities that have additional resources to cover those longer operating days and reduce the need for a premium pay. We've increased our minimum starting pay to $15 an hour to better source applicants for those positions and we're offering premium pay for our employees Pick up open shifts on their scheduled time off just in the meantime.
The second thing that we're focused on is sourcing flight instructors, So we can ensure that we can support the training needs for our pilots returning from extended time off as well as our recurrent training needs as we continue to add flying to the network throughout this year and then set ourselves up for 2022. It feels really good to finally be in a position where we can add slides and pick up our operating momentum. It was a bit messy as we throttled down our activity and it doesn't surprise me that it's a bit messy as we're accelerating it. But our employees just navigate through those things heroically. They have great hearts for our customers and for each other.
And I'm just So proud and thankful for their efforts every day. And with that, Ryan, I think I'll turn it back over to you.
Thank you, Mike. Chad, we'll turn it over to you to give instructions on how to queue up for analyst questions.
Thank you.
We will now begin the question and answer session. And the first question will come from Hunter Keay with Wolfe Research. Please go ahead.
Hey, everybody. Thanks for getting me on. I think it's probably a couple for Tammy, but I'm not sure. So first one Where are you right now on average daily utilization? And when do you plan on getting back to 2019 levels?
Yes. Yes, I can take that. So our utilization is currently around 11 hours per day roughly. And in terms of just getting back, we're Working through our schedule as we look into 2022. We're hoping to get back more in line with levels in 2019, but we're not too terribly far off Either obviously a lot of that will just continue to be based on demand and as Tom took you to largely a How quickly we see corporate demand returning.
And we still have what 39 airplanes in storage as well. Yes, absolutely. If you look at the total fleet, Hunter, in addition just to what's scheduled, we still have some slush in there, which Yes.
Good point.
We'll
try to ring out with the future schedules, obviously correlating with what Mike was Describing which is making sure we have the proper resources to support the additional flight activity.
I got you. And then sort of in the same vein on that, I know you said you're going to continue to evaluate the 44 options. Given the ESG benefit you highlighted, is it fair to assume that the bar is very high for you not To exercise those meaning, whether it's COVID related or whatever things would have probably get a lot worse for you not to exercise those options. Is that a fair Default way to think about it?
I think that is absolutely fair. As pointed out, we have a very cost efficient Boeing order book, obviously we have a very strong balance sheet with ample Cash and we can there's a strong ROI on those options Either way and obviously we're hoping we can continue to grow the airline here, but if not it's compelling A business case for us to retire the older Dash 700. So I think that is a fair assumption.
Thank you.
And the next question will be from Ravi Shanker with Morgan Stanley. Please go ahead.
Thank you. Good afternoon everyone. Maybe I'll start with a question on corporate. I think you said that your June corporate was down 69% And that's a pretty nice step up from where it was a couple of months before that. I think some of the legacy peers are down a little bit less than that.
So I'm just wondering if that's Kind of normal given your mix of business and kind of how do you see that trending over the next several months given that you're now complete with all your GDS integration? Thanks.
Well, so this is Tom. What we're seeing is, I think we're seeing something very similar actually to what I'm hearing and reading from the other carriers as they report. But just to give you some context, roughly, call it 30% of our passengers or so Our business travelers and that's like 35% of our revenues is generated by business travel. And I think that the opportunity for us, I think this kind of gets to your point or answer your question, we have a lot more opportunity to drive a lot more depth within the current We have with GDS. So I think that you'll see that begin to drive up our Southwest business numbers, if you will.
But very consistently, we're seeing about 5 points of improvement in Southwest Business bookings each month over the past 4 or 5 months. We said, I guess, this is the Q1 call, Ryan, we said that we our expectation was Southwest Business or Business Travel We'll be down about 50% by year end. If you just kind of extrapolate where we are right now, we would beat that. I think our Expectation would probably be at 50% by the end of this quarter and certainly beat that by the end of the year assuming things keep going. So I'm not sure that we're behind Our competitors are not to be honest with you.
I feel like going from down 88% to down 69% and the path towards down 50% by the end of the quarter is pretty much in line with the market. But I think we're going to see more and more penetration with the GDS implementations. And again, we just under index significantly
in these
big accounts. So that's an opportunity for us.
So I'm not going to say anything different than what Tom said. It's probably unnecessary for me to say anything. But Just to offer you my own opinion, which is we're using the corporate accounts that we know as a proxy. And so our total business travel is far beyond this proxy. And I think one could assume that there are smaller companies, maybe sole proprietors or what have you, but Our frequent flyer credits and there are just other inputs that we look at that would suggest that that is a conservative number.
So I agree with Tom. We're the largest airline in the country. We carry more people than any other airline. I think we carry more business travelers than any other airline. So I find it hard to believe that we're inconsistent with anybody else.
But admittedly, we hear the same numbers that you hear And we just can't we without surveying people, we can't be for sure what their purpose Travel is, but our frequent flyers, those flight credits are down far less Then 69%, which is some indication. Of course, it could be a business person who is traveling for personal reasons. We just don't know. But it's Probably more information than you wanted, but I can't imagine that we're out of step with anybody else in the industry.
No, that's great color and that makes a lot of sense. Maybe a follow-up for Tammy, kind of just given some of the labor issues that are hitting virtually every industry and every company out there. Maybe you can talk about kind of what Southwest is seeing on the ground and maybe some of the initiatives that you guys are taking to make sure that you guys are fully staffed for back of the year? Thank you.
Yes. I'll chime in there and Mike may want to chime in as well. But yes, we are so a couple of things. As I already mentioned, We are increasing salaries across our system, the minimum wage there. So I think that will certainly be helpful.
We are and just to kind of step back, we were actually staffed appropriately coming into the quarter. Now there are some locations where we're wanting to boost our hiring and Yes. We'll continue our efforts there. And then as we also mentioned, We have recalled our employees that were on the voluntary lead programs and we We'll recall all of those employees by the end of Q3, certainly by the end of the year. So we Southwest is known as one of the best employers in America.
So we don't anticipate any issues there on the hiring Right. So we will as we ramp up capacity here, make those decisions, we'll be able to hire the employees that we need. But Those are a few of the things that we're doing. Mike, anything that you wanted to add to that?
Yes. No, I don't have much. I would say that across The network, we're appropriately staffed. We've got pockets where we need more people. We've got pockets where we have too many people.
One of the great things that we can do and that we are doing is we can incent people temporarily to go Fill in where we're short. So we're doing that in our large locations. And as Tammy mentioned, we have a handful of our large locations where we have very aggressive Recruiting efforts going on. And as Tammy mentioned, with our $15 minimum We have really good pay packages with our union contracts out there and we feel like we'll be able to Get those people as we ramp up the network.
And we've just gotten back into the game. So I don't know when you started trying to recruit and hire Mike, but it can't be that many months ago. So It is more challenging. So we acknowledge that and I am worried about it, but I agree with Tammy and Mike moved The minimum is up to $15 an hour, which will certainly help. But pilots, flight attendants, We're not sensing that we're going to have any problem there.
I think it's more just hiring in our ground operations where there's just a lot of competition for
that pool of potential employees. It's interesting too that the staffing challenges a lot of times that we find ourselves having aren't our problems. It's the industry, it's everything around the industry whether it's van drivers or maid services to clean Tell rooms or people to work at restaurants and it just makes that entire environment difficult for our employees or customers to navigate through.
Very good. Thank you.
The next question will come from Stephen Trent from Citi. Please go ahead.
Hi, good afternoon, everybody, and thanks for taking my question. Just a very quick one from me. Any sense whether not just you guys, but any sense whether you think the industry might need to step up It's IT spend post pandemic, not only in terms of facilitating customer interface, but Also considering cybersecurity, you have this a few months ago, this Southeast Pipeline incident. I had 2 or 3 people tell me today that your website happened to be down. I don't know if that's true, but I'd just love to hear your thoughts.
Well, I guess I'll take that one. This is Tom.
Hey, Tom.
I think that's I think we're all struggling Not just airlines, but I think every company is struggling trying to figure out where to invest its cybersecurity dollars, what Elements of the most exposed, where is the biggest risk, how you defend against that and it's kind of a moving target, but that is a Real source of focus, I know it I'm sure it is for our competitors as well. It certainly is for me in my role. And so we're spending a lot of time on cybersecurity. I think that the I think that's the primary thing. I think that this is a network that is so Technology dependent and so network dependent that I think that's the area of investment that everyone's probably investing more in.
But I think beyond that, think every company has their own business strategy and their own set of technology requirements for that. But a big common thing I think is just The cybersecurity investment spend is very important, it's very real and it's significant and it's hard.
I'll just pile on to Tom's comment and actually I'm stealing his words, but we are very technology dependent as an It's probably stating the obvious, but that does suggest that we need to be Top drawer when it comes to our technology and obviously the cyber risk everyone is aware of and It is sort of a bottomless pit when it kind of comes down to how much does one need to do. But Not really trying to speak for the industry, just talking for us, but absolutely we view ourselves as a technology company. We have an excellent team. We have ample dollars allocated for that effort. And one thing that the pandemic has done for us is it's made us A lot more efficient with our technology investment and management and it's enabled a lot within the workforce as well.
So I feel like we're better than ever at Southwest and you can be sure that we're going to continue to make that a high strategic focus.
Gary, if you don't mind, since you just said we view ourselves as a technology company and an airline and service company, But we just did have an outage. So I think rather than wait for a question on it or not address, let me tell you how we feel about that and what happened. So just to be really clear, we did have a technology outage, which was pretty impactful. In fact, it really hindered Mike in the operation in a very significant way.
Yes, back in June.
Yes, back in June and it really clogged things up and just made for a very rough situation. And I just wanted you guys to know that First of all, it was not a cyber security issue. It was not a hardware failure. It was not an engineering failure or architectural issue. It was a human error.
It's just something that was a mistake made, and we're dealing with it. And It was not a structural issue or investment level issue. It was just a simple human error and we feel terrible about that. We got to be better than that, Especially if you're going to be so dependent upon technology, you can't have mistakes like that. But this was not a failure of technology, if you will.
It was A human mistake. So we'll do better, but I just wanted to get that out there before the question was asked or
Okay.
And Ken, Stephen, you mentioned one, this is Bob, customer experience investment, just an example of IT, and I'll just chime in for a second because it is kind of on my list of focused items I'd like to look at for 'twenty two and beyond Because they're just win win. They typically tend to be things that relatively low spend. You can put more and more Decisions and transactions at the hand in the hands of our customers on mobile devices, especially when we have things like a regular operations, the ability to And that way, give them choices without standing in line making a call to our wonderful CS and S employees as an example. Those are just terrific things that I would love to look at and we will look at because more and more Customers and our employees expect that they will be able to manage their lives interruptions on the mobile devices. And it's just good all the way around because the It's good for our customers because then they can handle more and more things via the self-service.
And it's good for us Because it moves those transactions from potentially long lines or long phone call wait time into a much Shorter handling period. So it is a focus of something that I would like to look at as our just how we can continue to take our terrific customer experience To an even greater level.
That was super helpful. Thanks very much, everybody.
The next question will be from Duane Pfennigwerth with Evercore ISI. Please go ahead.
Hey, thanks for the time. Question for Gary and Bob, and not sure if you all intended Bob to have PASC analyst questions at this point, but can you give us a sense for any differences in priorities, Leadership styles or relative strengths, appreciate you 2 have worked together for a long time, but maybe you could highlight some differences or preview some differences.
I think the biggest difference is that Bob is an Aggie and I'm not Larry, Texas Longhorn. And other than that, We're sort of joined at the hip. But Bob mentioned it in his remarks that he's been a part of this He's been a part of it for a long, long time. 33 years is a long time. He's at a number of different executive jobs.
So I think you all should just know that he's been a part of coming up with and defining our purpose and our vision and Translating that into a strategy and he's been a huge part of the execution. But at the same time, what we've got to be careful here is The task of a leader is to have the wisdom to know what to change and what not to change. And at the same I need to selfishly I need to empower him and get out of his way. So I had a good Teacher Herb Kelleher, he was Executive Chair for me and I wasn't necessarily thinking A time that okay, well I need to learn from this because I'll do it someday, but fortunately I have lived through that. And I do have a good idea of what I need to do to support him.
But Bob, it's really more of a question for you.
Yes. And we have been able to work through that whole Aggie Longhorn It's taken 2 of the 3 decades, but we got there. But no, I'm just kidding. But yes, I think A couple of things. One, we at the end of the day, as a CEO, you cannot do it all yourself.
It's all about the team, and we have a wonderful team of leaders here. And I think we're both very passionate about Focusing on that, developing our team, developing our leaders, developing the next generation of leaders and preparing people. And so I think that I feel like we're very similar in that way. Yes, in the same way that Gary invested me invested in me and many others for decades, but It's a passion point of mine to be able to continue to do that because it's all about not just What we can do as we have this change, it's about what we can do to set Southwest Airlines up for success for 20, 30 and even more years. On the Justeo front, in addition to that, I think our styles are again very similar.
We're very collaborative. We love Bringing the team into the conversation and the decisioning, if there's a difference, probably I and this can be good and bad. I'm probably a little more of a driver, maybe a little more impatient sometimes, which is probably why a lot of my assignments over the years have been go do things, Go get the Airtrain integration underway and push through completion as an example. So That can be a benefit in terms of driving and getting things accomplished in our plan, but I also have to work on sometimes slowing down Being collaborative and just make sure we make wise decisions here as we as of course we will. The how we would approach the plan And our strategic plan in particular, we're very similar.
I think they're as you know, we're very focused on things like GDS and modernizing the fleet. Plans change though. You complete a set of things and you roll into the next set of things. And you want to be very thoughtful about what those are. We want to be, again, collaborative with our About developing that set of next strategic initiatives.
And so we will work as part of our 'twenty two planning to think about that next set of things. I mentioned this upfront. I'm focused around things that are just maybe part of what is an expectation today. So our customers expect us To work with them and engage with them and produce a customer experience that is maybe, again, terrific. Our employees are just terrific, but they expect a lot of things to be Quick, delivered over mobile platforms, easy to resolve, even in an IROP situation.
Our employees expect the same thing. They want it to be very easy to work with Southwest Airlines, manage their shifts off of their iPhone, for example. And so I'll be very focused on some of those things. The other and again, this is a focus on both Gary and myself and our whole team is I'm very focused on our diversity commitments. We laid some of that out next last year.
We have things that we need to focus on. In particular, our diversity in our senior leadership group. And so you will likely hear me talking a lot about that. As Tom mentioned, we have a lot of focus in our sustainability commitments. And so plans change over time.
They always do. The initiatives we have on the table right now are what I and Gary know those were involved in 10 years ago, and so they're always going to shift. But we're going to make sound judgments. We're going to develop the team. We're going to stand by the principles that made Southwest Airlines great, our business model, our people, Balancing our results with our operation and with our customer experience.
And so maybe a long winded answer, but I think we have Generally, a lot of similarities in how we approach the business and the problems and our people.
I appreciate that perspective from you both. Maybe just a quick follow-up with respect to the labor availability tightness you're seeing frontline ground ops. Can you comment if that's broad based versus specific regions? And How do you think about solving what may prove to be a transitory cost issue with permanent Solutions or how do you what's your view on sort of transitory versus sort of fixed? Thank you.
You and Mike want to comment on that?
You bet. Yes, the and it's a complicated question because there are so many factors. I mentioned I was in Atlanta yesterday, so you could see The hiring and labor complexity firsthand there. So I think you're multiple things. You're in a broad based market with supply shortages.
So there's just There are just not enough people to fill the jobs that are open. The stats that I think I've heard is we went into the pandemic with open A lot of open jobs here in the U. S. And I think we have had 9,000,000 or 10,000,000 folks exit the workforce at this point. So we all see that the help wanted signs everywhere.
So you're competing in a market that is just tougher. As an example, we are getting Fewer applications for open position than we are used to. So it's just going to take a lot of vigor around The focus on hiring. Some of the differences are regional. I would say they're more About how to triage critical positions.
So we have places where it's more critical to the operation than others. For example, We are really we've got a full press on the hire on the Denver ramp as an example because there are needs there. We have a full press to hire flight instructors because we have plenty of pipeline of pilots we feel like, but we need to get them trained. We have folks coming off of the E XTO and it just takes time to train and get them back into the workforce. So there needs to rebuild our training capacity Just like our hiring capacity.
So I think I would tell you the it's I'm probably more focused on this being a broad based problem in terms of just labor availability than a narrow Issue in terms of a specific job. The biggest question to me, I think we're fighting our way through, We'll get to rebuilding recruiting teams and training teams and that's short term those are short term issues. How long does this persist? Do we plan against This being a 3 month issue as the folks are really going to return to the workforce, for example, once school starts? Or are we planning against A multiyear issue where it's going to be folks coming back into the workforce very slowly.
And that's a difficult question, which means you just have to be nimble in your planning, how we think about bringing aircraft to the schedule, which I'm very pleased we have the flexibility, How you think about planning your schedules and how you think about staffing your schedules. The last thing we want to do is put a schedule out there that we cannot staff. And so there's just there's a lot of focus on this. I will tell you, if it's not the number one focus right now, it is 1A, which is Getting our hiring in place and our staffing in place.
And the good news is there are techniques, Duane, to do what Bob described. And that is the philosophy that we're going with. But I'm sure you glean this. I mean the effort per hire Is I don't know what, Bob, double what it used to be? At least double.
So and that's money and so all of that I think that's what Bob means In addition to just how do you plan the next schedule, but Mike anything you want to add?
Not much. I would just say For me in the operation, I would say that there are 6 to 8 big locations in big cities that if I could Snap my fingers and we can go add ramp agents to those locations. That's what we want to go do. I think we've got a great package to offer them. And so when we get that in front of them, I think we'll be very successful at doing that.
But there is just to be transparent with you, there are also frustrations that people have to go through to get on On the ramp, there are background checks, there is badging at airports, there is driving out to the airports. So those are the things that we have to overcome with the compensation package and a career and benefits and travel privileges. And I think we'll be really successful at that, But it might take us 6 months or so to kind of get into the swing of things.
And that's as contrasted, Mike, So like Amazon, it doesn't require near the they don't have to and obviously we do.
Okay. Thank
you. The next question will be from Catherine O'Brien with Goldman Sachs. Please go ahead.
Good afternoon, everyone. Thanks so much for the time. Maybe just coming back to the discussion we had earlier on fleet, you've placed a couple of incremental orders For aircraft since the pandemic, including one since we last spoke last quarter, it would look like some pretty attractive economics. Not asking for capacity guidance, which I know will also be influenced by retirements as you noted, but off of that 2019 base that was so impacted by the MAX Grounding. How should we be thinking about your ability to produce ASMs based on the MAX return to service and these incremental deliveries over the next couple of years?
Thanks for any color.
I think the and I'm sure there are several thoughts in the room here. I think that the company, You're talking about technology and physical plant and facilities and things like that. I think the company is very well prepared to increase volume. We're very so to me, you kind of think about it, if we want to grow, we need airplanes, we need airports, We need money and we need people. Those are sort of the 4 big categories.
We've got And the Boeing deal as I mentioned to you all back in the Q1, that is a huge strategic positioning for us. I'm very, very pleased with that. So check, I think the airport capacity that we have around the country is in great shape And where it's not for the most part we have a line of sight to address it, number 2, so I'd check that one. We've got money. And as I was trying to share with you all in my introductory remarks, we have more money right now than I thought we would 3 months ago or 6 months ago.
So I'm feeling really good about the balance sheet and our liquidity. And I think you're down to what we've been talking about the last 15 minutes, which is People resources and that I think will be our constraint. So I hope that answers your question, but I'll just open it up.
I think the thing I'd add and Catherine, this is Tom. The thing I'd add is assuming you get past the people A strange piece of it. In terms of how we want to use the capacity and by the way I think back to Hunter's question, It seems to me we would take those aircraft because if you want to retire, you still you can retire. You got to it's NPV positive, all that kind of stuff. You have a better Customer experience at all works.
I don't think there's a fear or concern of us taking too much aircraft and being stuck, right? So we have plenty of flexibility, The ability to retire, the ability to retain and keep growing. But I guess what I'm really getting at is our ability to produce good ASMs and productive ASMs is going to be Somewhat, in fact, largely dependent upon when does business traffic begin to come back. And let me explain why. The composition of our network, our point to point network, it's Our principle around the point to point network has not changed with the pandemic.
How that's been executed for the past It's been shifted a little bit just by virtue of the environment, but our philosophy is the very same. So we do want to get back to The pre pandemic mix of direct versus connecting flights, call it 75, 25 historically. We're a little bit Skewed off of that's probably, I don't know, Andrew, 72, 28 or something like that. So we want to get that back. We also want to get back to our mix of Short, medium, long haul flying, call it rough terms, forty-forty-twenty, short, medium, long is percent.
And Right now it's more like thirty-forty-thirty because those short haul flights, those are the business driven flights. And the business traffic wasn't there. We needed to create leisure capacity that came from short haul. So as business comes back, you'll begin to see us Just reinstate that kind of flying. So there are many, many productive uses of the capacity.
And again, If the demand does not show up, we have the ability to retire 737, 700s, right, and just continue to improve the fleet. So I think we've got, in fact, either Mike said this or Tammy said this or we've all said this, the flexibility we have on the upside or the downside is really positive. It's really strong.
Yes, I think the redeployment and you all check me on this, but the redeployment to try to go back to where we were in 2015, That's 15% of our route system as I recall that we have reallocated from call it more business oriented markets I. E. Short The longer more leisure oriented. So I think that speaks somewhat to what you're describing. But The other thing I would comment on 2019, in 2019, we weren't close to Providing the network that we wanted because we were constrained in that scenario by the fleet.
And so we're already trying to get back to where we were plus and all of this is as we've all said it's all dependent upon demand Materializing like we're thinking. But yes, I think we've got a great opportunity and as long as we can get, I think at this point, the people We'll be able to deliver.
That's great. Thank you so much for the color. And I think, Gary, someone needs for a retirement presence to get you that recipe for capacity growth a pillow or something. That was great. I like that.
If I could just maybe sneak one more modeling type question shorter term Looking through the monthly revenue forecast, we see August step down a little bit from July. I think there's some holiday movement in there as you mentioned and perhaps second half of August is a little bit more back to school given your kind of south and southeast parts of your network. If that's right on the return to school driving a little bit less leisure demand while corporate is still depressed, would it follow that September should also see a sequential step down in performance Versus August or are there other factors at play? Thank you so much for the time.
Well, you're asking good questions. I think that the First of all, I think that the calendar shift from 2 points from August to September, it's just that's a calendar shift. It doesn't really belied the underlying Strength of the business. So August is performing well, right. So I'm not concerned about August.
There are no red flags in August, but it does have the natural Seasonality, the first half is strong leisure, the second half is back to school and that's where the business travel begins to kick in and pick up the slack and that kind Thanks. We're waiting to see that. We feel pretty good about that. In terms of September, we did something this year that was really creative. So I'm kind of I'm smiling at Andrew right now because he and his team swore this out and worked through it.
But we had a 50th anniversary sale that was really all about driving Leisure demand in the back half of September, September, call it 2nd week of September through November 3rd or some such date, but it's basically trying to fill in Upfront, the leisure bookings early to secure a nice solid foundation book of business and from that point Forward throughout the rest of September October, you're able to begin to manage just the remaining booking window, if you will. So that has worked really well. In fact, the 50th anniversary sale is a 3 day sale. I think 2 of the 3 days, Andrew, were 2 of the top Number 1 and number 2 in terms of our history over 50 years of bookings, right. So this thing really worked.
Point being we have very solid foundation Leisure bookings in place for September. I'm very curious to see what's going to happen With business travel post Labor Day, everything we're sensing, feeling, hearing is suggesting that you're going to see it begin to come back. What I'm really encouraged by is, I'm going to be quick, I'm taking too much time. Of the top 50 or so Corporate travel accounts, 7 are professional services consulting firms. They're all traveling.
The lockdowns are removed, so they are traveling and that's a big deal for us and that just begins to generate more and more. So I think it's beginning to pick up some steam. So I'm non plus by the August issue you raised. I don't think that's an issue. September, we've built a good sell on book at leisure and I feel good about where we are.
Yes. And Tom, the only other thought that I'll just tag on really quickly is we've got some exciting things happening in just a few days as We turn on Sabre. So obviously there's going to be a ramp up, but we're super excited about that And we think we're uniquely positioned in that regard with respect to corporate business Travel. So a lot to look forward to. We're really excited about it.
And as I think Gary and Tom have already Alluded to is you shouldn't read anything different into our September forecast versus what you're hearing by some of our competitors. We We're just we're coming out of a pandemic. It's as simple as that, but we feel really good about where we're headed.
Yes. And we have just continued our Sort of pandemic rhythm here of providing 60 days outlook. But We're not we don't see anything that suggests that September is going to drop off.
So I
think that's Just to make sure that that comes through. We're reluctant to provide a forecast yet because it's just far enough out. But the August is just the timing of the holiday is all that is.
Next question will come from Savi Syth with Raymond James. Please go ahead.
Hey, good afternoon everyone. Just a question on the cost side, if I might ask again. If I take out the hopefully what our shorter term rebuild Near term pressures, it looks like unit costs are flat to down 4% or so versus 2019 and Capacity being back to 2019 levels, I was just wondering if this is a fair base level. And I asked this because I know in 3Q 2019, I think that was about 7 points of pressure from the MAX related grounding. So curious how we should think about what's been achieved in terms of Getting costs out.
Yes. Savi, I can start and I'm sure others will want to chime in here as well. But Just to take you through our thought process here, as we laid out for you in the release, Absent the operational cost impacts that we called out, our Q3 and non fuel unit costs excluding Special items and profit sharing would be forecast to trend in line below in line or below 2019 unit cost levels. So while most of these near term cost pressures should be one time or non recurring as we And move beyond this ramp up period. We have always really considered getting back to 2019 unit cost levels as sort of a point in time target and we've shared that sentiment with you, I know before.
As As far as the cost base in 2019, we are or we were carrying extra employees as you pointed out due to the MAX grounding. However, when you think about that, the nominal cost Of that was really overshadowed by the 7 points of capacity that we were unable to fly back in 2019 that Of the outsized inflation. So if you fast forward to where we are today, We have lower overall headcount due to voluntary retirement, but Just keep in mind, we've had 2 years of rate inflation for our employees. And as we've already covered with you, we've recalled the vast Majority of those employees from extended time off. The recall will help us of course As we continue adding trips here in the 3rd and the 4th quarter, but it does reduce the benefit from our voluntary leave programs By about $50,000,000 in both Q3 as well as Q4.
And the other thing to consider Is that we are now back to 2019 AS levels and we are building toward 2019 Trip levels as I pointed out earlier. So just so we'll have some noise here as we've already covered with You all, it's just not as clean as we would like as we are adding back in capacity and we will need to Do some hiring as we've already covered with you all for our work for many of our work groups to support that trip growth in the second half and as we restore our network next year. But what I really wanted to get to is As we bring back on more capacity. So I think that's a really key point for you all. We're just It's just a little messy here, but that is obviously our goal.
Our goal is to scale as efficiently as we can as we Restore our network. So, I think hopefully that's helpful. We're going to be really focused on our productivity Metrics like employees for aircraft and we're going to all work together just to be as efficient as we can and really go back to more of our history of having very highly productive employees And that will be anchored around our PointPoint network and our all Boeing 737 fleet. So I feel like our competitive cost advantages are Very much intact and we're going to work really hard to make sure that We scale efficiently and offset inflationary pressures, Which is not unique to Southwest as best we can.
Yeah, really Savi, I think Tammy's last point is the important one, which is We want to strive and it ties in with Hunter's initial question about aircraft productivity to schedule efficiency And that will be somewhat dependent upon demand and how many flights we can put in. But 2018, 2019, Coming into 2020, we had great momentum running the operation. We had great plans to improve the turn times And improve our efficiency and we have not yet had a chance to test those out. I'm very excited about that opportunity. So I think that's really key and it's guesswork as to when we're going to have the opportunity to actually do that.
We'll need more airplanes. We need more flights. We all the things that we've been talking about all morning here. So that will be
If I might make sure I understood that then if I kind of there's a lot of moving parts clearly that But more of a realistic way to think about a sustainable level and there'll be inflation beyond that, but maybe getting to slightly below 2019 is the realistic View on once things have normalized?
Well, I'd be shooting from the hip to answer that question. I think we can be I could be thoughtful in answering that. Tammy may already know the answer. But 2019 was not optimized either. And as you have pointed out, I think the question is, if it were, what would that benchmark be and how realistic is that given the inflation?
Yes, I agree, Gary. And Savi, just we're not ready to provide 4th quarter guidance And we'll be meeting later this year and we'll be more prepared at that point to lay out our plan for 2022. But I will try to just provide you just a couple of points just to give you a little color. We do just to be clear that we do expect the current cost inflation in salary, wages and benefits from our operational strength to be temporary. And here in the near term, we anticipate some ongoing cost pressures And other cost categories as we ramp up our flying and that's obviously like maintenance airport and other So there will be some costs that come back on as we add capacity as we cover.
And then There will be some choppiness too as we bring back our flying. Just looking ahead to Q4 as an example, our maintenance Cost will be a burden more in Q4 due to just bringing the -700s that Gary mentioned out of storage and back into service. And we're realizing airport cost pressures as well. And then the inflation we've already covered. So again, I think it really goes back to As we scale up, we'll have more operating leverage and we'll I think the key here is to get back to Those 2019 productivity levels.
Again, a lot of moving parts and as we get through the year, have more visibility into next We'll be prepared to give you all a better guidance there.
Appreciate all the color. Thank you.
We have time for one more question and we'll take our last question from Helane Becker with Cowen. Please go ahead.
Thank you very much operator for squeezing me in. Thank you guys. So I have two questions. One is you talked about the level of credit card acquisitions in, I guess, the June quarter. And I'm wondering if you can Say what you attribute that to, why you're seeing such a strong recovery in that area Versus maybe what you would have expected pre pandemic?
Yes. Well, it's pretty simple We had a lot more people traveling, so you have the opportunity to get them to sign up. And we also marketed it really hard. We had a very aggressive 2,000 point offer out there, sign up offer. And with more people being out there, it's just that much more Feeling, I guess, or it's easier to get more people signed up.
But it's also just a great card. I mean, it's part of the Rapid Rewards program, which is An incredible program. There's no blackout date, the points never expire and on and on and on. It's just a very, very valuable card in form of currency It's performing extraordinarily well. I'm not going to get into the chase performance numbers, but man, we are performing very, very well.
So I think pharmacist people being out there traveling again and being able to acquire and we have market is pretty hard. I think consumers
are flush Yes, as well. They're out and they want to spend money and so get a credit card. But no, we've been very pleased with that.
Okay. That's great. Yes. No. And then the other question is you talked about environmental issues And I thought you've got a pretty good and the company has had a pretty good track record.
Tammy isn't the first CFO that's a female and Colleen Barrett back in the day was President. So you have had a really good A track record of supporting, I think, all of checking on this box as a young fuel efficient fleet And diversity at every level. And I'm just kind of wondering what you think you two things. What you need what you think you need to do to maybe get more credit for it. And then second, how we should measure you against it?
Bob, do you want to? Yes, Alain, I think it's yes, you're right. We have I think we have a really good track record. And What you saw for us last year, we came out with commitments that were really around diversity, in particular racial diversity in our senior leadership group. So I think what you find is that as you look at our So I think what you find is that as you look at our broad employee base, we are very diverse.
So Particularly on the frontline, I think my guess would be that our diversity in our overall workforce, particularly the frontline for the most part matches what You would see here in the United States, I think that's I think we're in really good shape there. But as you move sort of up the leadership Jane here and again I'm thinking about our senior leadership. It is hard to argue that we don't have some work to do. We have terrific leaders. We have a terrific pipeline of leaders and it's really just about making sure that as we think about our Succession planning and our long term pipelines that those are diverse.
We are hiring practices focused on thinking about diversity as a component, where do we recruit, how do we think about hiring and how we choose to hire. And then again, because if you just took our senior leadership group as an example, where we do have some work to do, I would argue, And that was part of our goal stated last year. It's a long succession pipeline to move from An entry level leadership position ultimately into a senior leadership position that may be a decade long process. So Just very focused on, to be honest, the processes we use to think about how we hire and how we recruit and where we And where we recruit and then how we think about just Improving our diversity and senior leadership and then again that depends on the pipeline. We're looking at things like just classic Sponsorship and mentorship programs, which we all do.
And so again, I wouldn't take that as, Wow, we have a big issue. I think we historically, you're right, we have, I think, Produced really good results, but there is improvement that we I think we need to focus on there.
That's very helpful. Thank you.
You're welcome. I'm looking forward to being with you at the conference here in a month or so by the way.
Thanks. Looking forward to it as well.
All right. Well, that wraps up the analyst portion of our Q and A. I appreciate everybody joining us this morning. And if you have any follow-up questions, please give our Investor Relations team a call. Thanks so much and have a good day.
Ladies and gentlemen, we will now begin with our media portion of today's call. I'd like to first introduce Ms. Linda Rutherford, Executive Vice President, People and Communications.
Chad, thank you very much. We'll get underway with our media Q and A. If you'll go ahead and give them some instructions to queue
At this time, we will pause momentarily to assemble our roster. Thank you. And our first question will be from Alison Sider with The Wall Street Journal. Please go ahead.
Hey, thanks so much. Yes, I was wondering if I guess with the
benefit of hindsight, if there's anything you would do differently in planning for this summer or any additional sort of coordination that there might have been between The network side and the operations side, just as you look back, if you had the opportunity to kind of replan the summer all over again, if you do anything differently?
Well, I'll take that one. The what we Only with the benefit of hindsight by the way because the schedule was very well planned. It was very well coordinated between Our financial objectives, our commercial opportunity and our operational capabilities, it was very well planned. It was planned based on Our historic modeling of what kind of resources we need for what kind of activity, which we have 50 years of experience doing And we included some cushion for lack of a better word. So turn times as an example were actually Plan to be higher than what we would otherwise expect.
And in hindsight, there are some elements of our Plans that were too tight, that being one of them at some of our locations. If you were listening to the analyst call, Mike mentioned His 8 largest airports. So weather, we factored in weather as best We could and the weather was more spring like in June in particular than normal and so that kind of whacked us. So that's out of our control. Technology One off things and those are the 2 headline issues for June.
If we get into July, I think we're in the middle of the pack most days Mike. So we're not first in the industry, we're not last. So the industry It's simply operating slower. And I think we want to be we can see some Elements of where that's manifesting. What we do know is we have a different network than 2 years ago.
We have a much higher proportion of consumers traveling. That has translated into much heavier baggage loads And also buying itineraries that are More complex, I. E. Connecting, which also translates into more connecting bags. So we can see Things today that we would not have known when we put the schedule into effect, I can assure you we'll be factoring that in Prospectively.
So that's the one very tangible thing that I've seen so far and again you've got experts in the room here that may want to chime in. But the overall allegation that we were Understaffed is not true. That is incorrect. Meaning that it wasn't understaffing that Led to delays. The problem becomes the delays whatever the reason for is Puts pressure on the staffing because the days are longer or as Mike was describing how flight crews end up Diverted and in the wrong place and out of position and so do airplanes.
So getting the airline back on the tracks Obviously is job 1 and but our people have done a phenomenal job. They're working very hard. Mike described Some of the challenges in the environment, it's just I blame it on the pandemic. It's messy. It's messy coming in.
It's certainly messy coming out. Anything you guys want to add?
Yes, I'll just throw something in here, Allison. Our point to point network is a different model than most other airlines out there. And the way that we are able to absorb some significant events in that kind of a model As we would generally cancel a flight, get the airline back on time and then we would reaccommodate customers through other alternatives that we had and we do that very successfully year in year out. The biggest change that I think we face this year With 2020 hindsight is we can't absorb those significant events as efficiently this year as we did in the past because we don't have as much frequency in our network today that we did yesterday. But we will in the future.
And so what that is causing us to do is to run those flights a little bit later and it extends the operating day. And so that's really the crux of the issue and then the solve for that is As we grow the network and add flights back, that solves itself. And then also we're going to come into a period of time where we don't have The thunderstorms and these pop up weather events that we do here in June July. So I feel like the worst part of all that is behind us. And given all the information that we had, as Gary said, we were planned appropriately well, just not able to absorb those significant events like we could in the past.
Saying all of that, we're roughly in the middle of the pack in terms of dealing with those things today.
And Allison, and I agree with Mike's point on our network, but even having said that we had no problem with this new network until mid June. No problem whatsoever and we had great on time performance all the way through May. So, yes, I will admit to you and I take full responsibility for it. I was surprised I wasn't surprised at the impact of the technology outages had, but it took quite an effort to work our way through the second half of June and the weather events. And we're closer to normal here in July, although we're not satisfied with where we are.
But long answer to your question, but it is complicated. I will say that and it's been 20 fourseven Because it's not obviously the customer service that we want to offer our customers, but I think the worst clearly the worst of it's behind us
And the next question will come from Tracy Bircinski with Reuters. Please go ahead.
Hi, everyone. Thanks for taking my question. I was wondering if you have any updates on steps that you're taking to address unruly passengers and better equipped Crew to deal with bad behavior in flight.
Yes. So Tracy, this is Mike. So our flight attendants, they have really good training on handling passenger disruptions and just How to deescalate events and we have recurrent training with respect to that And I think that they do a very, very good job with that. But as you mentioned, there has been a marked increase in what I would say Our views of customer behaviors and that's throughout the whole industry and I know that it's a small subset Travelers to be sure, but we haven't experienced these kinds of violent outbreaks before. And I can understand from a customer's perspective maybe how of that frustration builds up, but there is we have no tolerance for customers to take out that frustration on our people or anyone else for that matter and especially if those are in physically threatening or assaulting manners.
And So we try to be as hospitable as we can as part of our operating philosophy day in and day out. But we do have a responsibility to inform customers of the federal mask mandate and In the enforcement of that mask mandate by reporting abusive and threatening behaviors to authorities, we have been Very vocal with our unions about having these authorities follow-up and be as aggressive as they can on these abusive customers. And in addition to that, we will add customers to our restricted travel list If they are abusing our employees.
Will you make self defense classes mandatory for flight attendants?
We have different defense mechanisms, defense classes that we defense techniques That we talk that are already part of our recurrent training in our flight classes.
Okay. Thank you.
The next question will be from Leslie Joseph with CNBC. Please go ahead.
Hi. Thanks for taking my question. I was wondering what your expectations are for labor costs In the next few years, especially if you start renegotiating some contracts with some of the groups?
You know Leslie, I think we have taken there's been a lull In 2019 or 2020 2021, getting through this pandemic, But I think as the economy recovers and the business in the United States grows back up to what everybody thinks that they're going to be, I think we'll have the same type of labor pressures going forward as we did in the past. And generally, those are Wage rate increases or scale increases that are along the lines of inflation or GDP growth. And I
think we'll have those going forward. Yes, I think the important thing to note and Mike said it, I'll just restate
it a little bit different way is,
We're coming off of $5,000,000,000 worth of losses And we lost money again here in the Q2. We're hoping to make money in the Q3. So in that kind of environment You kind of question the wisdom of increasing costs further. And I think our point is real simple, which is no, we want to Take care of our people. We want to continue to reward them.
They've gotten us through this pandemic. They've got us set up for prosperity once again as we work our way out of this and we're certainly looking forward to concluding negotiations where we can reward our people going forward. The exact amount which I don't know if you were driving for that, the exact amount certainly for our contract employees is negotiated And we wouldn't speak to that. But the main thing is we want to get those done so that we can reward our employees. Okay.
And in the near term, are you seeing any benefit or near and medium term to having more junior employees join? I know the floor is higher now, but maybe lower rates than some of the senior people that left?
Yes. There's always The growth is always a help because of that average wage rate effect. So, yes, as we're hiring, which is an element of growth, whether we actually literally grow or not, if we're hiring people, we'll get some benefit But that does that's not really a driving that's not a strategic or even much of a tactical Objective of ours, that's just the arithmetic the way that works out. I don't know, Tammy, if you have it Off the top of your head what that effect might be. But just remember that for over a year we weren't hiring anybody.
It was going the other way. So We're just now getting back into the hiring mode and I couldn't tell you how many people we've actually hired here recently, but it's not that many.
Yes. No, not much to add there, Gary. That's exactly right. We're just now really ginning up the hiring machine. But Just in terms of the contracts that we have with our employees, we always while we're low cost, We don't achieve those certainly on the backs of our employees.
And just looking here at the current year, we would estimate Rate increases in a couple of $100,000,000 for the full year this year just based on the current Contractual increases. So it's not like wages are standing still. There are rates embedded in the contracts And which is what Mike was referring to as the step increases and so that is the call it couple of 100,000,000 that
Yes, our employees that are not under union contracts, they got merit increases last year. They'll get them they've had them this year and we're having promotions and promotional increases. So we're I think our folks are doing a good job of taking care of our people.
Thank you.
The next question will be from David Koenig with the Associated Press. Please go ahead.
Yes. Hi. Good afternoon, everybody. As a follow-up to Alison Sider's question, you mentioned in the release and Tammy mentioned it here That you're going to save less money than you had previously expected because you're calling people back from leave a little earlier than you had thought. So I wonder, do you feel now like you waited too long before recalling people and did that contribute to what's happened over the summer?
No. Hey, David, we were called everybody, I think, probably in the March April We have about 400 pilots left on E XTO and they're coming back to the company here between October March, but we've before the summer started, we had all of our people recall.
Well, we have nearly yes, we have nearly everybody back here in the next month or so. I don't No, I feel like we began the recall because we know the schedule far in advance.
Far in advance and we know our training capacity Right, far in advance. So all of that, the output of that is how many flights can you fly, right? And so no, There is no implication at all that we needed to that we should have recalled people earlier.
Okay. Thank you.
And the next question will be from David Zlopnik with The Points Guy. Please go ahead.
Hi, thanks for taking the question. I'm just wondering about the delta variant. It sounds from everything that we've been hearing over the 2 weeks like it hasn't been affecting bookings and airlines aren't really seeing any consequence from that yet. What I'm wondering is what red flags are you looking out for? What What signs are you looking at for that there is damage if that ends up happening?
Well, I guess, Transactionally, we're just looking at bookings straight up, are the bookings coming in or not. So that's kind of real time, but prospectively we're looking back and Trying to understand what is the customer sentiment and our customers are beginning to be less willing to travel or not because of the Delta variant. And to be honest with you, we have not seen that very, very modestly, but almost statistically insignificant, to be honest with you. So We're looking at the customer sentiment, but we're also certainly looking at current bookings as well as forward bookings in the trends of the trends and they are they're still selling trends. So you really have not See, if we did, we'd share that with you, but we are just not seeing at this point any issue or any impact from the Delta variant.
And I think further to that our folks try to stay very well informed and we're aware like you are that the case counts have ticked up. We're locally at least we're hearing predictions that the cases will rise significantly in the fall. Hope not, but we're reading that too. But it's not just the airline activity. You look more broadly and there's no indication anywhere that I see that activity is being diminished because of the Increase in the case counts.
So far so good. I'm worried about it, Just like your question implies and I think what I've tried to share is that We've got to be very nimble and very flexible here and we are very well prepared. If things do soften up, we're ready And we will adjust accordingly.
And I think the last thing is watching the all the data as Gary mentioned. The big question is also I think we all feel like it's getting the vaccines out there and the vaccine efficacy is what drove The surge in demand and bookings starting in maybe late February and then the surge in demand here in the summer. The question would be Is the Delta variant or whatever variant comes in the future somehow changing the efficacy of the vaccines? And there's no as far as I know, there's no evidence That, I mean, the story is go get vaccinated because if you're vaccinated, it's working. I think in the All that President Biden had yesterday, the report was that of all the recent deaths and all of this is unfortunate, I think 99.5% of the folks were not vaccinated.
So I think we're also looking at is somehow the variant changing the efficacy of the vaccines and so far it is not.
Appreciate the insight. Thank you.
The next question will come from Dawn Gilbertson with the USA TODAY. Please go ahead.
Hi, good morning. Ali asked the gist of my question about the operations, but I do have a couple of follow ups on that front as well, although the question on the mask mandate. Bob, you mentioned in your remarks you were talking about fewer flights to reaccommodate people. I wrote down The number 16, did you mean 16% or can you what's that statistic?
It was percent, yes.
Percent, okay.
I heard the same thing you did and you just left off percent.
Okay, because I knew it wasn't 16 fewer.
Sorry, I meant yes, sorry. And then on time performance, what is it so far in July? You said it's middle of the pack. And Basically, I guess the question is, when can travelers expect I know you said the worst is behind you, but when can travelers expect you guys to get back to normal operationally or at least to your standards operationally?
Well, it's 67 month to date here in July at this point in time, May 14. And that's when I say 67%, that means that they were arriving within 14 minutes of the scheduled arrival time. We're closer in the 80s there if you just expand that to the 30 minutes. So I think from a customer perspective, we're still offering a A decent experience. It's not what we want, because it's taking them a little bit longer to get to the destinations than what we would like them to.
I think that as some of these weather events and these thunderstorms Disappear here in the August September timeframe. And then I think just the natural trends are for our load factors To tailor off just a bit, that will give us more recovery options than we have today. And so I expect us to be better here. We're better in July than we were in June. I think we'll be better in August than we were in July.
And hopefully, hereby the end of Q3 and Q4, we'll be back to where we wanted to be.
Okay. And then the follow-up question, I don't know if this is for Gary or Bob or who. On the mask mandate, the September 13 expiration date, do you expect that To be lifted or extended and what is your stance on that? Thank you.
Well, I'll take that one. That's well, that's a political question to a degree. So I don't know whether the mandate will be extended or not. What we have been Consistently advocating is that we follow the CDC guidelines which is if you are vaccinated there is no mask required And if you are not vaccinated, then you should wear the mask. And Unless that changes from the CDC, we wouldn't advocate from Southwest perspective or the A4A for that matter Extending the mask mandate.
You've got the Delta variant now that is somewhat new information at this point. So I'm sure that is being very carefully thought through and studied. But I'm not aware of any effort underway to extend the mask mandate and we at least at this as of today we're not advocating an extension.
Thanks very much Gary.
We have time for one more question. We'll take our last question from Mary Schlangenstein with Bloomberg News. Please go ahead.
Hi. I wanted to go back to the issue of the unruly passengers just real quickly and ask, would Southwest advocate for more of those Passengers to face criminal prosecutions versus civil penalties and do you think that would have any impact on the level of disruptions?
Well, Mary, I just I have a hard time tolerating any passenger that Physically abuses our employees. That feels criminal to me and I think that is criminal.
If it's a criminal activity that
And so there are extreme cases out there that that is occurring. And I think that We will be for whatever the full enforcement and letter of the law, whatever is available, We would be in support of that.
Okay. Thank you.
This concludes our question and answer session.
I would like to turn the conference back over
to Ms. Rutherford for any closing remarks.
Thank you so much, Chad. Thank you all for joining us today. If you have follow-up questions, you can reach out to our communications team and you know that we're always on at www atswamedia.com. Thank you all very much.
And thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.