UPDATE 2-Southwest Airlines expects higher costs to keep profit elusive

·2 min read

(Adds outlook for Q4, background details) 

  By Rajesh Kumar Singh and Sanjana Shivdas 

  Oct 21 (Reuters) - Southwest Airlines Co posted a smaller-than-expected loss for the third quarter on Thursday, and said profit would remain elusive in the current quarter as mounting costs are expected to offset improved travel bookings. 

  The Texas-based carrier has had to cancel flights en masse partly due to staff shortages, having earlier added more flights to its schedule to capitalize on a hoped recovery in air travel as pandemic restrictions eased. 

  Such cancellations earlier this month are expected to result in a $75 million hit to October revenue. 

  "Third quarter 2021 was a challenge for us, operationally," Chief Executive Gary Kelly said in a statement. 

  "We have reined in our capacity plans to adjust to the current staffing environment." 

  Southwest expects its capacity to be down about 6% in the first quarter of 2022 compared with the same period in 2019, before the pandemic. 

  The company said it was aggressively hiring, with the aim of having about 5,000 new employees by the end of this year. 

  It expects four to five points of the unit cost increases in the current quarter due to efforts to bolster staffing, cost inflation related to lower productivity, and vaccination incentive pay. Southwest is also facing higher airport costs. 

  As a result, overall costs are estimated to rise between 8% to 12% in the quarter through December compared with the same period in 2019. 

  After taking a hit from the Delta variant of the coronavirus, Southwest said revenue and travel bookings have improved since the second half of September. 

  Still, it expects a $40 million impact on October revenue from lingering effects of the pandemic. 

  Excluding items, the Dallas-based airline's net loss narrowed to $135 million, or 23 cents per share, in the quarter ended Sept. 30, from $1.17 billion, or $1.99 per share, a year earlier. 

  Analysts on average expected Southwest to report a loss of 27 cents per share on revenue of $4.58 billion in the third quarter, according to Refinitiv data. (Reporting by Rajesh Kumar Singh in Chicago and Sanjana Shivdas in Bengaluru; Editing by Vinay Dwivedi and Bernadette Baum) 

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