Southwest Airlines Co. (NYSE:LUV) Q4 2022 Earnings Call Transcript

Lori Aratani: Hi, thank you, all for taking the time. I know that the DOT yesterday had announced a little more detail about some of the issues that they’re looking into in regards to your December issues, and they mentioned that they are examining whether your schedules may have been unrealistic. I wondered if you guys had any comment on that.

Andrew Watterson : Yeah, we saw that. And we know, as Bob said, we messed up, and that will include scrutiny from regulators and like officials. So we understand that, and we’ll cooperate fully. As I mentioned in one of the analyst reviews, if you — if one were worried about with your schedule operable, then you’d expect to see poor on-time performance for reliability. And to the contrary, really well before the Christmas vacation, including Thanksgiving vacation in November, we’ve been running above average in the industry, culminate even being number one this month. So you don’t see the signs of a schedule that is out of whack with the resources ability to operate given our strong operating performance over the last three months.

Bob Jordan : And just generally, there’s a lot of talk about hearings and, obviously, the coordination with the DOT. And we’re obviously coordinating and cooperating with our oversight committees. And I mean we welcome the discussion. We welcome the focus on the resiliency of the aviation system. We’ve had several personal conversations with the Secretary just in terms of how we’re doing and our focus on our customers and his focus on customers as well, and we’re aligned, obviously there. So we would — we’ll support all of this, as you would expect.

Lori Aratani: Thank you.

Bob Jordan : Thank you, Lori.

Operator: The next question is from Chris Isidore with CNN. Please go ahead.

Chris Isidore: So I’m wondering if you think that the computer system used for crew scheduling can be repaired or if your intention is to replace it entirely as part of this process. And whichever solution is used, do you have any estimate for how much it will cost to either fix or repair it and how long it will take before the repaired or new system is fully in place?

Andrew Watterson : Thank you. As we mentioned earlier, there’s an upgrade already in our test system from GE Digital. So the upgrades in there. We haven’t even talked costs. I don’t not sure if it’s going to cause us anything or not, but it will be upgraded here in the production in a few weeks’ time, and we think this addresses the shortcoming we have for the specific instance.

Bob Jordan : And just to get a reminder that this GE system, Sky Solver, it’s an industry tool that many airlines use. It performs well, and it performed as it should. And even in our event, what was revealed was this requirement that no one has ever seen, we would ever seen, where the — you have this need to solve past problems because there are so many problems coming and just volume coming out of the system. And working with GE, they have put a fix in place and now in test in weeks, I mean, a record time. So the software, again, it’s industry standard crew scheduling or rescheduling software that we and others use, and it did perform as intended during the event.

Chris Isidore: So just to be clear, the problems with crew members letting you know where they were and where things stood having to call in rather than having an app to notify, you don’t see a need to change the system fundamentally to have a more electronic form of notification?

Bob Jordan : That’s different.

Andrew Watterson : As I mentioned earlier, that was a problem. We have been a problem, it wasn’t the problem for the situation. It was a symptom of the problem. And so our contracts with our crews right now require telephone calls in these situations. In other situations, we have some level of electronic communication available now. We will make incremental improvements to that. Some have already been deployed now and some will be deployed in the next few months. But to have a more comprehensive electronic communication requires changes to the contract with the crew members. Those are open right now. We’re discussing it with our unions. And should they agree, then we will develop new crew communication tools consistent with the contract for development as soon as practical.

Chris Isidore: Have you raised the possibility of opening the contract for that one issue and having to — because as we understand it from the statements from the unions during the December, they were not fans of the current system about. Having an agreement on a new notification and new electronic crew notification system now before you get to the entire contract itself because the entire contract itself could obviously take months.

Ryan Green : Well, the entire contract’s been for a while. We’re in mediation, which hopefully, as Bob said, means we’re towards the tail end of it, and it’s not — we would certainly be open to that if they want to do that. They’ve not told us that they want to do that. But if they want a site agreement before based on just communications, we will certainly do that. But right now, the approach has been to have that incorporated into this final push of the current contracts, and I think that’s wise and practical for us to work on. So we’re happy either way. But right now, we’ve seen no indication than the current path. .

Chris Isidore: Okay. Thank you.

Ryan Green : Thank you.

Operator: And at this time, we have time for one more additional question, and that question will be from Richard Velotta from Las Vegas Review Journal. Please go ahead.

Richard Velotta: Thank you, and good day. You indicated that added capacity by Southwest do several destinations will not be curtailed despite what happened in December. But we’re hearing that Harry Reed International is starting to have internal capacity problems and that airlines might not have much choice in terms of when their operations occur. Has Southwest had any problem scheduling their times of operations as the airline schedule grows in Las Vegas? And do you think the future capacity issues in Las Vegas could curtail flights in the future?