Southwest Airlines has announced a 15-year offtake agreement with Velocys Renewables LLC for 219 million gallons of sustainable aviation fuel (SAF).

As announced by Velocys, once blended with conventional jet fuel, the SAF could produce the equivalent of 575 million gallons of net-zero¹ fuel and avoid 6.5 million metric tons of CO₂ over the term of the agreement. Southwest® plans to begin purchasing SAF from the Velocys Bayou Fuels facility in Natchez, Mississippi, as early as 2026. Additionally, as part of the offtake agreement, Southwest and Velocys have established a long-term strategic relationship, offering Southwest the opportunity to purchase significant volumes of SAF from future Velocys facilities.

Southwest recognizes the critical role that commercially viable SAF will play in the carrier’s strategy to achieve carbon neutrality by 2050. Southwest is one of the most honored airlines in the world and strives to maintain a steadfast focus on a triple bottom line: People, Performance, and Planet.

Velocys is an LSE-listed, international sustainable fuels technology company, traded on the AIM, providing clients with a technology solution to enable the production of negative Carbon Intensity synthetic, drop-in fuels from a variety of waste materials. SAF (‘Sustainable Aviation Fuel’) is the only commercially available, permanent alternative to fossil aviation fuels.

The technology is IP-protected in all major jurisdictions.

Two reference projects in the US and UK (Bayou Fuels and Altalto) are designed to accelerate the adoption and standardize the Velocys proprietary Fischer Tropsch (FT) technology and Bio Energy with CCS solution, BECCS. Velocys is investing in increased capability to deliver its technology to clients, enabling commercial scale SAF production in response to the mandated fuel transition.

Velocys technology pathway is enabling the next generation of low carbon sustainable fuels with significant additional positive air quality impacts.

Southwest Airlines has partnered with CHOOOSETM to launch a carbon offset offer that allows Customers to earn 10 Rapid Rewards® bonus points per dollar contributed to help Southwest® offset its carbon emissions, up to a maximum of 500 Rapid Rewards bonus points per month*. Starting today, Customers can contribute funds for the purchase of offsets for Southwest at Southwest.com/wannaoffsetcarbon, and for every dollar a Customer contributes toward offsetting carbon emissions, Southwest will match the contribution**.

When a Customer contributes funds, those funds will be used to purchase carbon offsets sourced from global projects that reduce or avoid carbon emissions, including those that protect land that could otherwise undergo significant commercial timber harvesting or avoid unplanned deforestation and degradation.

Southwest’s carbon offset offer is one part of the Company’s 10-year plan to maintain carbon neutrality to 2019 levels while continuing to grow its operations. In addition to offsetting, the Company plans to continue modernizing its fleet with more fuel efficient aircraft in its operation and support the development of sustainable aviation fuel. “Today’s launch is an important component of our larger environmental sustainability plan to reduce, replace, and offset,” said Helen Giles, Director of Environmental Sustainability for Southwest Airlines. “Our ultimate objective is to achieve carbon neutrality by 2050, and partnering with CHOOOSE™ and our Customers is an exciting part of our journey.”

*Taxes and fees will not earn points. Points will only be awarded to the Rapid Rewards Member’s Rapid Rewards account number entered at the time of the carbon offset transaction. Terms and conditions apply.

**Taxes and fees will not be matched by Southwest. All offsets will be retired in the name of Southwest Airlines Co. Terms and conditions apply.

Southwest Airlines Company today reported its third quarter 2021 financial results:

• Third quarter net income of $446 million, or $.73 per diluted share, driven by a $763 million offset of salaries, wages, and benefits expenses related to the receipt of Payroll Support Program (PSP) proceeds under the American Rescue Plan Act of 2021
• Excluding special items¹, third quarter net loss of $135 million, or $.23 loss per diluted share
• Third quarter operating revenues of $4.7 billion, down 17.0 percent compared with third quarter 2019
• Ended third quarter with liquidity² of $17.0 billion, well in excess of debt outstanding of $11.2 billion

Gary C. Kelly, Chairman of the Board and Chief Executive Officer, stated, “Third quarter 2021 was a challenge for us, operationally. Despite the deceleration of traffic in August and September due to surging COVID-19 cases, the third quarter 2021 demand and revenue performance was quite strong and a dramatic improvement from a year ago. That was a bright and encouraging sign of recovery, and I was especially pleased with July’s revenue and profit performance. We were aggressive with our capacity plans for third quarter 2021, coming close to pre-pandemic third quarter 2019 available seat miles. Our active (versus inactive) and available staffing fell below plan and, along with other factors, caused us to miss our operational ontime performance targets, and that created additional cost headwinds. The net effect, including a revenue penalty of $300 million due to the COVID-19 surge, was a loss of $135 million, excluding special items.

“We have reined in our capacity plans to adjust to the current staffing environment, and our ontime performance has improved, accordingly. We are aggressively hiring to a goal of approximately 5,000 new Employees by the end of this year, and we are currently more than halfway toward that goal. Our 2022 capacity planning reflects more conservative staffing assumptions, as well, all compared to historical norms. With respect to our fourth quarter 2021 revenue outlook, while there are lingering effects from the summer COVID-19 surge and recent operational challenges, we are encouraged with renewed momentum in leisure and business traffic, revenues, and bookings—especially over the holidays. Except for higher fuel prices, fourth quarter 2021’s overall results are trending better than third quarter 2021.

“I am very proud of our People. They worked especially hard in challenging circumstances. We made good progress in our pandemic recovery in third quarter 2021, and I expect more in fourth quarter. I’m very excited about the demand recovery and our prospects for 2022. Our Leadership has an excellent plan with a laser focus on execution. We are in a very strong financial position, and I thank all of our People for their resilience, their resolve, and their devotion to serving our valued Customers.”

Revenue Results and Outlook
The Company’s third quarter 2021 operating revenues increased 161.0 percent, year-over-year, to $4.7 billion, but decreased 17.0 percent compared with third quarter 2019 due to the impact of the pandemic. Third quarter 2021 operating revenue per available seat mile (RASM, or unit revenues) was 12.07 cents, a decrease of 15.7 percent, compared with third quarter 2019, driven primarily by a passenger revenue yield decrease of 15.0 percent and a load factor decrease of 2.8 points.

Although less severe than prior waves of rising COVID-19 cases, the negative effects associated with the Delta variant are estimated to have impacted August and September 2021 operating revenues by approximately $100 million and $200 million, respectively. Despite the demand deceleration, third quarter 2021 operating revenues and revenue passengers reached 83 percent and 87 percent of 2019 levels, respectively, which is meaningful progress and a strong indication of the pent-up demand for air travel. Revenue and booking trends began to significantly improve in the second half of September 2021 as COVID-19 cases declined, which resulted in an improvement in the Company’s September and third quarter 2021 operating revenues as compared with the Company’s previous estimation. September 2021 managed business revenues declined 73 percent compared with September 2019.

The following table presents selected revenue and load factor results for third quarter 2021:

The Company is encouraged by recent improvements in underlying revenue trends as COVID-19 cases have declined; however, the lingering effects from the deceleration in bookings in third quarter 2021 are estimated to negatively impact fourth quarter 2021 operating revenues by approximately $100 million. For October 2021, despite the improvement in revenue and booking trends experienced in the second half of September 2021 continuing, thus far, into this month, October operating revenues include two headwinds—an estimated $40 million negative impact due to the lingering effects of the Delta variant and an estimated $75 million negative impact as a result of flight cancellations from operational challenges experienced earlier this month and related Customer refunds and gestures of goodwill. Despite these headwinds, and based on current bookings, the Company’s guidance for October 2021 operating revenues remains unchanged, as the recent improvement in travel demand trends offsets the aforementioned headwinds. Business revenues continue to lag leisure revenue trends; however, the Company is encouraged by the recent improvement in business travel demand resulting in steady improvements in business bookings, thus far, in October 2021. Beyond October 2021, the current booking curve for the holidays is trending in line with 2019 levels.

The following table presents estimates of revenue and load factor for October and fourth quarter 2021:

The Company went live with Sabre’s Global Distribution System (GDS) platform on July 26, 2021, achieving the Company’s goal of enabling industry-standard corporate bookings through multiple GDS platforms. In addition to Sabre, the Company is currently accepting corporate bookings through Amadeus’s GDS platform and Travelport’s multiple GDS platforms (Apollo, Worldspan, and Galileo). The Company’s enhancement of its GDS channel strategy is part of its larger “channel of choice” offering and complements its “direct connect” strategy, as well as its existing SWABIZ® direct travel management tool. The goal is to distribute Southwest’s everyday low fares to more business travelers through their preferred channel and grow the Company’s managed business revenues.

Cost Performance and Outlook
Third quarter 2021 operating expenses increased 23.2 percent, year-over-year, to $3.9 billion, but decreased 18.1 percent compared with third quarter 2019 primarily due to a $763 million offset of salaries, wages, and benefits expenses related to the receipt of PSP proceeds, which was recorded as a special item. Excluding special items, third quarter 2021 operating expenses increased 40.6 percent, year-over-year, to $4.7 billion. Third quarter 2021 operating expenses per available seat mile (CASM, or unit costs) decreased 16.8 percent, compared with third quarter 2019. Excluding special items, third quarter 2021 CASM was comparable with third quarter 2019.

The following table presents economic fuel costs per gallon¹, including the impact of fuel hedging premium expense and fuel derivative contracts, for third quarter 2021 and the corresponding prior year period:

The Company’s third quarter 2021 available seat miles (ASMs, or capacity) per gallon (fuel efficiency) declined 4.5 percent, year-over-year, due to the return to service of more of the Company’s least fuel-efficient aircraft, The Boeing Company (Boeing) 737-700 (-700). When compared with third quarter 2019, fuel efficiency improved 5.1 percent in third quarter 2021 due to the March 2021 return to service of the Company’s most fuel-efficient aircraft, the Boeing 737 MAX (MAX). The MAX remains critical to the Company’s efforts to modernize its fleet, reduce carbon emissions intensity, and achieve its goal of carbon neutrality by 2050. The Company expects fourth quarter 2021 fuel efficiency to be in line with third quarter 2021, on a nominal basis.

Based on the Company’s existing fuel derivative contracts and market prices as of October 14, 2021, the following table presents estimates of economic fuel costs per gallon³, including the estimated impact of fuel hedging premium expense and fuel derivative contracts, for fourth quarter 2021 and the corresponding prior year period:

As of October 14, 2021, the fair market value of the Company’s fuel derivative contracts for the remainder of 2021 was an asset of approximately $89 million, and the fair market value settling in 2022 and beyond was an asset of approximately $824 million. Additional information regarding the Company’s fuel derivative contracts is included in the accompanying tables.

Excluding fuel and oil expense, third quarter 2021 operating expenses increased 4.6 percent, year-over-year, and decreased 20.8 percent, compared with third quarter 2019. The Company accrued $77 million of profit sharing expense in third quarter 2021, for a total of $186 million year-to-date, compared with no profit sharing accrual in third quarter 2020. Excluding fuel and oil expense, special items, and profit sharing, third quarter 2021 operating expenses increased 22.9 percent, year-over-year, and increased 1.9 percent compared with third quarter 2019. Third quarter 2021 CASM, excluding fuel and oil expense, special items, and profit sharing, decreased 16.1 percent, year-over-year, driven primarily by an increase in capacity, and increased 3.5 percent compared with third quarter 2019, which was in line with the Company’s expectation. As expected, approximately four points of the unit cost increase, compared with third quarter 2019, was attributable to ramp up costs and premium pay offered to Operations Employees. The Company realized approximately $185 million of costs savings in third quarter 2021 from voluntary separation and extended leave programs and estimates annual 2021 cost savings from these programs to be in the range of $1.0 billion to $1.1 billion.

Based on current cost trends and reduced capacity plans, fourth quarter 2021 operating expenses, excluding fuel and oil expense, special items, and profit sharing, are expected to be comparable with fourth quarter 2019 levels, and increase in the range of 8 percent to 12 percent on a unit basis⁴ as compared with fourth quarter 2019. The Company is experiencing cost increases primarily due to inflation in labor rates and airport costs. Additionally, the Company currently expects four to five points of the unit cost increase in fourth quarter 2021 to be attributable to investments in the operation to bolster staffing, cost inflation related to lower productivity, and vaccination incentive pay. The Company recently launched a Vaccination Participation Pay Program to incentivize Employees with the equivalent of two days of pay intended to cover the time needed to become vaccinated.

Third quarter 2021 Other expenses increased $2 million, year-over-year, primarily due to a $12 million charge on the partial extinguishment of the Company’s convertible notes, partially offset by an improvement in other gains and losses driven by adjustments for fuel derivative contracts not designated as fuel hedges for accounting purposes. Both of these items are excluded from the Company’s non-GAAP results as special items. Additionally, interest expense in third quarter 2021 increased $4 million, year-over-year, driven by debt incurred since third quarter 2020.

The Company’s third quarter 2021 effective tax rate was 26 percent. The Company currently estimates its annual 2021 effective tax rate to be approximately 27 percent, compared with its previous guidance of approximately 26 percent.

Based on the current cost outlook, and despite the current momentum in revenue trends, the Company does not expect to be profitable in fourth quarter 2021.

Fleet and Capacity
The Company ended third quarter 2021 with 737 Boeing 737 aircraft, including 69 Boeing 737-8 (-8) aircraft. During third quarter 2021, the Company took delivery of one -8 aircraft and does not expect any additional deliveries in 2021. As of September 30, 2021, 24 -700 aircraft remained in temporary storage due to fourth quarter 2021 capacity remaining below fourth quarter 2019 levels. The Company still expects to return one leased -700 aircraft to the lessor in fourth quarter 2021, and recently made the decision to accelerate the retirement of eight -700 owned aircraft from 2022 into fourth quarter 2021, for a total of 18 retirements in 2021. The Company expects to end 2021 with 728 total aircraft.

During third quarter 2021, the Company exercised eight Boeing 737-7 (-7) options for delivery in 2022, and on October 1, 2021, the Company exercised another eight -7 options for delivery in 2023. Including the options exercised on October 1, 2021, the Company’s order book with Boeing contains 399 MAX firm orders (250 -7 and 149 -8) and 252 MAX options (-7 or -8) for years 2021 through 2031. The Company continues to expect that more than half of the MAX aircraft in its firm order book will replace a significant amount of its 461 -700 aircraft over the next 10 to 15 years to support the modernization of its fleet, a key component of its environmental sustainability efforts. Additional information regarding the Company’s aircraft delivery schedule is included in the accompanying tables.

The Company’s third quarter 2021 capacity increased 46.4 percent, year-over-year, due to increased flight activity driven primarily by increased leisure passenger traffic, but decreased 1.6 percent compared with third quarter 2019. The following table presents capacity results for third quarter 2021:

The Company expects its fourth quarter 2021 capacity to remain below fourth quarter 2019 levels, and today adjusted its published flight schedule for December 2021. Including these adjustments, the following table presents capacity estimates for fourth quarter 2021:

The Company’s flight schedule is published for sale through April 24, 2022, and the Company currently expects first quarter 2022 capacity to decrease approximately 6 percent compared with first quarter 2019.

Liquidity and Capital Deployment
As of September 30, 2021, the Company had approximately $16.0 billion in cash and short-term investments, and a fully available revolving secured credit facility of $1.0 billion. The Company continues to have unencumbered assets with an estimated value of more than $11.0 billion, including aircraft value estimated in the range of $9.0 billion to $9.5 billion, and approximately $2.0 billion in non-aircraft assets such as spare engines, ground equipment, and real estate. In addition, the Company has significant value from its Rapid Rewards® loyalty program. As of October 20, 2021, the Company had cash and short-term investments of approximately $16.2 billion.

Net cash used in operations during third quarter 2021 was $575 million, driven primarily by the negative financial effects of the Delta variant on travel demand. Third quarter 2021 capital expenditures were $135 million. The Company continues to estimate its 2021 capital expenditures to be in the range of $500 million to $600 million, driven primarily by technology, facilities, and operational investments, as well as aircraft-related capital expenditures. Based on 72 MAX firm orders planned for 2022, the Company’s contractual aircraft capital expenditures for 2022⁵ are now estimated to be approximately $1.7 billion, compared with its previous guidance of $1.6 billion. Further, the Company’s total contractual aircraft capital expenditures for all years 2022 through 2026, which represent 200 MAX firm orders (185 -7 and 15 -8), are estimated to be approximately $6.0 billion. Fleet and other capital investment plans are expected to continue to evolve as the Company manages through this pandemic recovery period, and the Company intends to evaluate the exercise of its remaining 42 MAX options for 2022 as decision deadlines occur.

As of September 30, 2021, the Company had current and non-current debt obligations that totaled $11.2 billion. The Company repaid approximately $188 million in debt and finance lease obligations during third quarter 2021, including the extinguishment of $80 million in principal of its convertible notes for a cash payment of $121 million. The Company is currently scheduled to repay approximately $182 million in debt and finance lease obligations in fourth quarter 2021. Based on current debt outstanding and current market interest rates, the Company expects fourth quarter 2021 interest expense to be approximately $115 million. As of September 30, 2021, the Company was in a net cash position⁶ of $4.8 billion, and its adjusted debt⁷ to invested capital (leverage) was 56 percent. The Company remains the only U.S. airline with an investment-grade credit rating by all three rating agencies.

Southwest Airlines has announced a series of near-term goals, actions, and initiatives in support of a 10-year plan to maintain carbon neutrality to 2019 levels while continuing to grow its operations.

The Company plans to achieve these objectives through the following actions:

• Reduce its carbon emissions per available seat mile (including scope 1 and scope 2 emissions) by at least 20 percent by 2030 through fleet modernization, route optimization, and other initiatives.
• Replace 10 percent of its total jet fuel consumption with sustainable aviation fuel (SAF) by 2030.
• Offset emissions by providing the first U.S.-based airline carbon offset offer with loyalty points and for every dollar contributed toward offsetting Southwest’s carbon emissions, Southwest will match the contribution.*

*Taxes and fees will not be matched by Southwest or earn points. Southwest’s contribution may be used to purchase offsets for Southwest from any carbon offset project of Southwest’s choice. Rapid Rewards® Members can earn 10 Rapid Rewards bonus points per dollar contributed towards the purchase of offsets for Southwest up to a maximum of 500 Rapid Rewards bonus points per month. Points will only be awarded to the Rapid Rewards Member’s Rapid Rewards account number entered at the time of the carbon offset transaction.

Southwest’s 10-year plan to maintain carbon neutrality to 2019 levels while continuing to grow its operations includes plans to reduce, replace, and offset. In addition, the Company will continue to partner with organizations and nonprofits whose work complements its efforts to improve environmental sustainability and will invite Customers to join in this effort to show kindness to our planet.

The scope of Southwest’s Sustainability efforts extends well beyond a ten-year time horizon. The ultimate objective is to achieve carbon neutrality by 2050, and there is significant work underway directed at this ultimate objective. An important step in that long-term plan is a tangible strategy and clear set of actions for the next ten years.

Reduce
Southwest plans to continue reducing its carbon emissions intensity by:

• Modernizing its fleet with more fuel-efficient Boeing 737 MAX 7 and 8 aircraft. Southwest has extended its order book through 2031 with plans to accelerate  737-700 retirements and invest more than $10 billion in new and existing firm aircraft orders to further improve fuel efficiency and reduce carbon emissions.
• Continuing to work with the Federal Aviation Administration’s (FAA) NextGen program in an effort to modernize the U.S. air traffic control system by addressing limitations on air transportation capacity and making more efficient use of airspace.
• Electrifying eligible ground services equipment, increasing the current fleet of more than 1,400 electric-powered vehicles.
• Adding to the Company’s more than $630 million investment in fuel efficiency initiatives since 2002, implementing, as an example, new technology to monitor fleet utilization

Replace
By 2030, Southwest plans to replace 10 percent of its total jet fuel consumption as sustainable aviation fuel by:

• Establishing a partnership with Neste for up to 5 million gallons of SAF through December 2023.
• Working with Marathon Petroleum Corporation and Phillips 66, furthering its announced memoranda of understanding, to facilitate the development and production of SAF at significant scale.
• Engaging with Deloitte, Siemens, and Zurich North America for SAF beta partnerships to help support Southwest’s utilization of SAF in its operation.

Offset
As Southwest implements long-term plans and explores new technologies in the short-term, it also is taking steps to offset energy consumption and engage both individual and corporate Customers on opportunities by:

• Partnering with ChoooseTM and Customers to offset Southwest’s carbon emissions by providing the first U.S.-based airline carbon offset offer with loyalty points and for every dollar contributed toward offsetting Southwest’s carbon emissions, Southwest will match the contribution.*
• Launching the Green Incentive Program, a Southwest Business performance-based incentive program that provides corporate Customers the opportunity to earn and use funds for their company’s sustainability initiatives, which could include offsets or other initiatives.
• Sourcing 100 percent renewable electricity as of May 2021 for the carrier’s Dallas corporate campus through the purchase of renewable energy certificates.

Partner
In addition to the goals announced above, partnerships will play a crucial role in Southwest’s sustainability efforts, along with government support and collaboration throughout the entire value chain, including:

• Making a $10 million commitment to Yale’s Center for Natural Carbon Capture to research technological advancements and find new solutions to reduce net greenhouse gas emissions and to Yale’s School of the Environment to explore the current state of sustainability, strategy, policy, and economics.
• Continuing Repurpose with Purpose, a global sustainability initiative that upcycles items such as leather seat coverings and transforms them into new products. Through Repurpose with Purpose, Southwest Airlines supports communities by helping to provide employment, skills training, and donated products. In 2020, nearly 140,000 pounds of leather seat covers were repurposed, helping Southwest reduce the amount of waste sent to landfills while also generating social and economic opportunities for communities.
• Working with a variety of organizations and nonprofits, including Airlines for America (A4A), whose work complements our sustainability efforts, as well as government entities in supporting investments and incentives to help the industry meet its goals.

Southwest Airlines extends a tremendous apology to our Customers and Employees for the flight cancellations and delays which occurred over the weekend and on Monday.

On Friday evening, the airline ended the day with numerous cancellations, primarily created by weather and other external constraints, which left aircraft and Crews out of pre-planned positions to operate our schedule on Saturday. Unfortunately, the out-of-place aircraft and continued strain on our Crew resources created additional cancelations across our point-to-point network that cascaded throughout the weekend and into Monday.

Southwest Teams have been working diligently to restore stability to the network, and we are experiencing less disruptions on Monday. We hope to restore our full schedule as soon as possible. As a note, the operational challenges were not a result of Southwest Employee demonstrations.

To every Customer that experienced a cancellation or delay, Southwest offers our sincerest regret regarding disrupted travel plans, and we look forward to a future opportunity to demonstrate our safe, reliable, friendly, and legendary Southwest Hospitality – something that Customers should always expect from Southwest Airlines.

Southwest CEO on the airline’s Covid vaccine push, flight fiasco:

From CNBC:

JIM CRAMER: Southwest shares are edging higher this morning, thank heavens. The airline is hoping to normalize the schedule by tomorrow. Normalize is an odd term because I expect normal from Southwest. The wave of cancellations in the past few days, wave in cancellations let’s go back earlier in the spring. This is suboptimal. So, joining us now is Southwest Airlines Chairman and CEO Gary Kelly. Gary, I got to tell you, you do not shy away. I said you got to come on and here you are. Gary, because you are so good and so deserving of the respect, could you please tell us what you see going on because this is not you and it’s not southwest.

GARY KELLY: Hey, morning Jim. Great to be with you. Yeah, I know it’s been a really rough weekend and obviously I really feel for our customers and our people that are trying their best to serve our customers but when an airline gets behind, it’s hard to catch up. So, if you go back to Friday, basically the FAA had a series of delay programs that were implemented that covered all of Florida, every single one of our stations including a seven-hour ground stop at Orlando. You’ll have to ask the FAA what was the cause of all of that, but about half of our airplanes touch the state of Florida. We’re one of the largest airlines in the country. So, by the end of the day we had significant numbers of airplanes and flight crews that were totally out of position and as any, again, any aviation expert knows it just takes several days to get everything back aligned so we had a pretty good day yesterday. Far fewer cancellations than what we were experiencing Saturday and Sunday. And today was pretty much shaping up to be a normal day. As usual we have other issues that we have to deal with whether it’s weather or other ATC delays across the country but for the most part, today’s pretty much back to normal.

CRAMER: Okay, Gary, I understand that the weather-related issues. Florida didn’t really see that much cancellations from other companies in your industry, but there’s a lawsuit that was filed, filed Southwest Airlines Pilots Association, it’s in the Northern District of Texas. And what disturbed me about it, this was earlier this year, is they say that basically you’re using illegal tactics are a form of asymmetrical warfare negotiations. Gary, Gary, you know when you read this and then you read about the Texas governor says, listen we can’t, we’re gonna be against mandates. I see. Well, wait, wait a second, maybe vaccines are an issue, maybe labor problems of which Southwest Air has not historically had so you understand how we quickly just pivot from Florida and FAA to wondering what happened here with the pilots?

KELLY: Well yeah, again, I think that we’re uniquely affected because we have so many of our flights that touch Florida. All the airlines were impacted on Friday, it was just more of an impact on us and it just took us longer to recover. But all of our employees worked very hard through the weekend and it’s, it’s tough on our customers but it’s also tough on our people so they did a phenomenal job. There’s absolutely no, no issue in working with our employees. Talking about the vaccine mandate, oh yeah, I mean there are some that have very strong views on both sides of that issue and, you know, it’s not as I think you probably know, I’ve never been in favor of corporations imposing that kind of a mandate. I’m not in favor of that, never have been. But the executive order from President Biden mandates that all federal employees and then all federal contractors which covers all the major airlines have to have a mandate vaccine in place by December the eighth so we’re working through that. We’re urging all of our employees to get vaccinated. If they can’t, we’re urging them to seek an accommodation either for medical or religious reasons and my goal obviously is that no one loses their job. The objective here obviously is to improve health and safety, not for people to lose their jobs. So, yes, we have some very strong views on that topic but that’s not what was at issue with Southwest over the weekend.

CRAMER: Alright but I still want to go over this. United has only 3% people who are not vaccinated. Delta, you have a $200 monthly surcharge healthcare if you don’t get vaccinated. What do you have to make it so people get vaccinated and if they don’t, what is the procedure?

KELLY: We’re encouraging them and we’re offering the equivalent of two days pay for them to turn in their vaccination card that compensates them obviously for the time that it takes and any aftereffects, you know, from the vaccine. So, it’s an encouragement and not, not any kind of a stick if you will.

CARL QUINTANILLA: Gary, all the same, the, the cancellations are being used by some to argue that this was a huge vaccine protest in the words of Donald Trump Jr. on Twitter in the past 24 hours. I mean, how much can you push back on that? You say it was not an issue but to what degree did it contribute to this problem at all?

KELLY: Zero. I mean, again, we look at all of our employee behaviors in terms of absenteeism, in terms of people volunteering to come in and pick up what’s referred to as open time, and they’re very, they’re all very normal. The president of our pilots union has been out talking to the media confirming all of that so I think people again that, that understand how airlines work, when you get behind, it just takes several days to catch up and the fact that we’re basically caught up yesterday and today supports, you know, the, the assertion that we’re making here but we were significantly set behind on Friday and it just takes several days to catch up.

CRAMER: Gary, I feel awful doing this but I got to go back in June. Two days, technical issues, 500 flights canceled. I want to step back for a second. You’re Southwest Air. I frankly don’t care that there were problems with Florida, with FAA, you’re Southwest Air. You solve these things. You have two outages, again, you had one in June. Maybe Southwest Air has to change its ways that it can’t be just shut down because of what Orlando, maybe you shouldn’t do that maybe you need to go more hub and spoke. This is your, your airline and everyone knows, never, never, no cancellations, no problems. The fact that I have to ask about labor, the fact that I have to ask about the outages, something’s wrong at Southwest Air.

KELLY: Well I think very fair criticism Jim and so I was simply answering the question of what happened here over the weekend, you know, not whether we should have been better prepared or have done something differently. So, we operate a linear route network, we don’t hub and spoke. We’re the probably the largest airline in terms of seats offered in the state of Florida. Again, every single airport in the state of Florida was impacted by this. So, it’s, it’s very unique. It’s very unusual. It wasn’t anything that Southwest caused. If you go back to the June outage, that was, that was us. That was a technology outage and those are, those are few and far between. But it’s been a rough summer and I’m not offering any excuses. Our customers didn’t get their best from Southwest Airlines is not what we want. We definitely are, we definitely have some staffing challenges as well that we’ve talked about before so we have moderated our flight schedule and accelerated our hiring plans so there were definitely steps underway to, to mitigate the issue. We were thinly staffed coming into the weekend and that certainly didn’t help things as we were trying to recover but point well taken, and, you know, it’s, as usual, any company is a work in progress and we’ve always got opportunities to improve and you get no argument from me that this is not, not the kind of service that we want to offer from Southwest.

CRAMER: Fair enough.

DAVID FABER: Hey Gary, it’s David. I mean when, when it comes then to those opportunities to improve, where is your, and by the way the next CEO, where is the focus going to be on that improvement given what you’ve seen both this weekend and obviously from June? I know not necessarily related, separate issues but still.

KELLY: Yeah not related at all but I think in the, in this particular case, it would help for us to have better tools to recover. So, there, there aren’t perfect optimization tools to re-flow airplanes when we have a setback like we did on Friday. And then, secondly, there’s technology that’s required to reschedule our flight crews, so we have flight attendants, we have pilots, we have airplanes and once it gets behind, it’s just difficult to get that back together so I think the opportunity is to improve on that process. It’s called repair. It’s complicated, but we definitely have some good opportunities there, you know, for the future.

QUINTANILLA: Gary, finally there’s some commentary from some of the other carriers today about the holiday season, preparing for robust travel period. Are you seeing that kind of booking in Q4?

KELLY: Yeah, I think, you know, on the business side of things, you have the Delta variant, the surge in cases that occurred, you know, beginning back in June and then eventually that has an impact on air travel and it suffers so that wave has turned over and we’ve definitely seen some improvement in, in bookings there so yeah we’re looking forward to a strong holiday season. And we just want to be very focused on offering a high-quality schedule and experience for our customers.

CRAMER: I want to go deeper on this weather issue. IBM has a weather product, the Wall Street Journal seemed to indicate that maybe it was not up to snuff. There are questions about whether you had spent enough money on IT during the 500 flight cancellation in June. Are you underspending on IT and have you over furloughed and therefore having trouble getting people back?

KELLY: All great questions. I think the answer is, you know, a very emphatic no, we’re not underspending. We suspended investing in some of our initiatives early on when the pandemic first unfolded in March, but we very quickly got back on track once the CARES Act Payroll Support Program came through and made sure that we continue to make those investments. The two technology outages that occurred back in June were human error so it wasn’t a lack of technological capability, it was simply, in one case, not adhering to a procedure. So, it happens to companies, you know, occasionally we just don’t want it to happen very often and obviously every time something like that happens, we, we tried to learn from it. We’ve deployed new technology for reservations, we’re in the process of deploying new maintenance, record keeping software that supports all of our aircraft, one of the largest projects we’ve ever undertaken, probably the largest deployment in the airline industry in history. So, we have wonderful technology, we have a wonderful technology department. They’re, they’re very well resourced. I think what like a lot of companies, we definitely are having some hiring challenges. We’re trying to get 5,000 people hired by the end of this year, we’re about halfway there. But overall technology’s in pretty good shape in terms of staffing and for the most part, our staffing challenges have moderated. I’d still like to have more cushion in the operation so we can absorb the kind of blow that we saw last Friday better.

CRAMER: Alright, thank you Gary Kelly, Chairman & CEO of Southwest Air. Good luck to you sir. Appreciate you coming on “Squawk on the Street.”

KELLY: Thank you sir. You bet.

https://www.cnbc.com/video/2021/10/12/southwest-ceo-on-the-airlines-covid-vaccine-push-flight-fiasco.html

Southwest Airlines has informed its employees they must be vaccinated against COVID-19 by December 8, making it the latest carrier to impose this requirement.

From CNBC:

https://www.cnbc.com/2021/09/23/southwest-airlines-next-ceo-says-carrier-will-cut-flights-next-year-if-staffing-falls-short.html