Southwest Airlines Co (LUV) Q4 2021 Earnings Call Transcript

Southwest Airlines Co  (NYSE: LUV) Q4 2021 earnings call dated Jan. 27, 2022

Corporate Participants:

Ryan Martinez — Vice President of Investor Relations

Gary C. Kelly — Chairman of the Board and Chief Executive Officer

Robert E. Jordan — Executive Vice President and Incoming Chief Executive Officer

Tammy Romo — Executive Vice President and Chief Financial Officer

Andrew Watterson — Executive Vice President and Chief Commercial Officer

Michael G. Van de Ven — President and Chief Operating Officer

Linda Rutherford — Executive Vice President People and Communications and Chief Communications Officer

Analysts:

Jamie Baker — J. P. Morgan Securities Inc. — Analyst

Duane Pfennigwerth — Evercore Partners — Analyst

Hunter Keay — Wolfe Research — Analyst

Helane Becker — Cowen Securities — Analyst

Mike Linenberg — Deutsche Bank — Analyst

Savanthi Syth — Raymond James and Associates — Analyst

David Vernon — Bernstein Research — Analyst

Sheila Kahyaoglu — Jefferies — Analyst

Kyle Arnold — Dallas Morning News — Analyst

Leslie Joseph — CNBC — Analyst

Alison Sider — Wall Street Journal — Analyst

Dawn Gilbertson — USA Today — Analyst

David Slotnick — TPG — Analyst

Mary Schlangenstein — Bloomberg News — Analyst

Presentation:

Operator

Good morning and welcome to the Southwest Airlines Fourth Quarter and Annual 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. [Operator Instructions]

At this time, I’d like to turn the call over to Mr. Ryan Martinez, Vice President of Investor Relations. Please go ahead, sir.

Ryan Martinez — Vice President of Investor Relations

Thank you, Chad. And thank you to everyone for joining us today. In just a moment, we will share some brief remarks and then open it up for Q&A. And on our call today, we have our Chairman of the Board and CEO, Gary Kelly; Executive Vice President and Incoming CEO, Bob Jordan; Executive Vice President and CFO, Tammy Romo; Executive Vice President and Chief Commercial Officer, Andrew Watterson; and President and Chief Operating Officer, Mike Van de Ven.

Just a few quick notes. First, 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. And second, we had a few special items in our fourth quarter results, which we excluded from our trends and for non-GAAP purposes. And we will reference these non-GAAP results in our remarks today. So, please see our press release from this morning and our IR website for more information and our cautionary statement, which covers these topics in more detail.

So with that, I have the pleasure of turning it over one last time to my friend, Gary Kelly.

Gary C. Kelly — Chairman of the Board and Chief Executive Officer

Thank you. Ryan, and good morning everybody and thank you for joining us for the Southwest Airlines fourth quarter 2021 earnings call. And first and foremost. I’m delighted to be able to say there were earnings and better than we thought at Investor Day last month. It’s obviously a great way to end a tough, but much improved year, a great way to start a new year. We are, of course, fighting our way through the omicron surge in January, February, and looking forward to a strong rebound in March and thereafter and as always that’s barring any unforeseen events.

I expect we’ll make great progress in 2022 and we’ll enjoy another much improved year. As we all know too well, it will not be without its challenges, but our people and our leadership are more than up to the task. I am enormously proud of all of them and I thank them profusely for their resilience and their perseverance through these myriad of challenges that we faced in the last two years. They’ve just done a phenomenal job.

Southwest is on top because our people deliver great service at low fares and our business model delivers consistent profits at handsome returns on capital and we’ve emerged from two years of pandemic with our balance sheet strength and our liquidity intact. And we are perfectly positioned to restore to expand and compete aggressively in the coming years. And I could not be more enthused and more excited about our future.

So, with that I’m going to turn it over to our outstanding CEO and waiting for five more days, Mr. Bob Jordan.

Robert E. Jordan — Executive Vice President and Incoming Chief Executive Officer

Well, thank you, Gary, and hello everybody. We were last together on December 8th at Investor Day and a lot has happened since then. But before I get to that, I want to thank my friend, Gary Kelly. Gary is a phenomenal leader and has done so much for Southwest and for me personally. There is no — there is just no way to say thank you enough for his 18 years of leadership as our CEO and I’m thrilled that he will be our Executive Chairman. I’ll take over the CEO responsibility for Investor Meetings going forward. So, this is Gary’s last earning call. And my friend, I just want to stop and say a huge thank you and I love you.

Well 2022 has had a challenging start, but that doesn’t change our goals for the year, getting properly staffed, focusing on our people, making meaningful progress, returning to our historic operational reliability and efficiency, providing our legendary hospitality and returning to consistent profitability. We made significant progress in ’21, including a profitable fourth quarter despite the pandemic, that’s all strong demand, 88% of 2019 revenues restored and managed business demand ahead of our expectations for December.

While we don’t expect to be profitable this quarter, the omicron impact does appear to be isolated to January and February and we expect a profit in March, expect to be profitable in the remaining quarters and for the full year 2022 based on our current plans. Our people performed just really well during the fourth quarter, as they always do, in particular during the holidays and demand held up well through year-end despite the omicron variant.

Beginning in early January, we experienced a very difficult environment due to rapidly rising COVID cases and a decrease in available staffing levels. It’s amazing, in the first three weeks, we had roughly 5,000 employees test positive for COVID with employee cases roughly 2.5 times what they were during the delta variant. The resulting staffing shortage combined with winter weather caused a spike in flight cancels and a significant disruption to the operation.

I’m pleased to report though that over the last few weeks, the operation and staffing have stabilized and we’ve seen performance even better than during the holiday. Yesterday, for example, we were 95% on time, which I’m just hugely proud of. To maintain sufficient available staff, we extended incentive pay programs for ops employees through early February. While that does add temporary cost pressure, it’s imperative that we have sufficient staff to operate our schedule and minimize our flight cancellations.

COVID case counts are on a downward trend and we intend to normalize our staffing and pay structure as a result. Hiring is part of the equation, of course, and we met our 2021 hiring goals and we are on track with plans to add at least 8,000 employees this year. We’re also raising our starting wage rates to be competitive in the market and due to the impacts from omicron and the variant in recent staffing challenges and we’re further moderating our first half 2022 capacity plans to provide additional buffer for the operation.

We’re encouraged by the recent improvement in bookings across the booking curve, especially in the March timeframe and we are hopeful that business travel will resume the 2021 trend. It appears that omicron impacts are pretty well contained to January and February from a revenue perspective and we believe our temporary approach to boost available staffing is working. We’ll stay flexible, of course, and will be willing to further adjust our plans if needed.

So, several things have transpired since Investor Day, all driven by the pandemic though, but for omicron, we would be on our Investor Day Q1 and full year 2022 guidance. However, I want you to know, make no mistake, we are laser focused on preserving our low cost position in the industry and returning to 2018 productivity and efficiency levels by the end of 2023. We believe Q1 CASM-Ex was a peak and our plans call for unit cost to ease from here into 2023. Looking at 2023, based on current growth plans, we expect CASM-Ex to be down as compared to 2022.

Restoring both the network and our fleet efficiency are key to returning to historic efficiency levels. And beyond that, I’m really excited about opportunities that continue network growth as we had gates in key cities such as Denver and Phoenix and Las Vegas, Baltimore, Nashville and even more. Beyond 2023, we see opportunities to meet and then be our historic productivity and efficiency levels as we continue to grow the company and focus on modernizing our operational tools and processes and Mike will talk more about that.

I don’t want to repeat my main message from Investor Day. Despite the near-term noise, we have a superb business model with substantial underlying competitive advantages. We have a great five-year strategy and a strong set of initiatives that will drive significant value. Our new co-brand credit card agreement is in place with our partner Chase, our GDS expansion is complete and our Southwest business team is armed with the tools they need to grow our business customer base.

We continue to work on our new fare product and our revenue management system optimization, so more to come there, but both should begin producing value this year and as we continue retiring older 737 700 aircraft and taking the MAX aircraft this year, in support of our fleet modernization initiatives as well. All combined, these initiatives are expected to deliver incremental EBIT of $1 billion to $1.5 billion in 2023 and we continue to expect roughly half of that value this year given the initiatives in place.

Like Gary said last and not least, I just want to thank our amazing people. There have been all kinds of challenges and they have performed just superbly. They continue to do an incredible job and manage through all of these challenges and I am just in all of them. And together, we will emerge from the pandemic and we will see the opportunities in front of us.

And with that I will turn it over to Tammy.

Tammy Romo — Executive Vice President and Chief Financial Officer

All right. Hello, everyone, and thank you, Bob. I’ve worked with Bob for a long time and I agree with Gary, he is going to be a great CEO. And my friend, Gary Kelly, you are amazing and I just want to thank you for all that you’ve done for our company and for all of us and for all of our shareholders. And I’m not going to say anything else because I will get choked up.

So, instead, I’m going to provide a quick overview of our financial results and share some additional color on our outlook beyond what we provided in our press release to you all this morning. And I also just want to thank our employees for their incredible resilience as we manage through this dynamic environment. It is their hard work, dedication and focus that enabled us to achieve an important milestone in our recovery with our first quarterly profit since the pandemic began.

We reported a $68 million profit in fourth quarter or $0.11 per diluted share and excluding special items, we reported an $85 million profit or $0.14 per diluted share. As Bob mentioned, our fourth quarter profit was driven by strong leisure demand during the holidays, business travel momentum and incremental revenue from our new co-brand credit card agreement with Chase.

Our fourth quarter results were all within the guidance ranges provided last month at Investor Day. For full-year 2021, our net income was $977 million or $1.61 per diluted share, driven by $2.7 billion of Payroll Support Program proceeds, excluding this temporary benefit to salary wages and benefits expense and other smaller special items, our full year net loss was $1.3 billion or a $2.15 loss per diluted share. Andrew will cover our revenue trends and outlook here in a minute.

Taking a look at cost. We continue to experience inflationary cost pressure experienced in fourth quarter, primarily in salary wages and benefits and airport cost as expected. A portion relates to hiring and we made great strides toward our hiring efforts in 2021 and remain on track with plans this year. And, of course, the labor market continues to be a challenge, which continues to pressure wage rates across the board.

Since Investor Day, we have experienced additional cost pressures related to omicron and winter weather. As a result, our first quarter unit cost inflation compared with first quarter 2019 and excluding fuel, special items, and profit sharing, have increased about 10 points. Roughly half of that increase is driven by the $150 million of additional incentive pay, we are offering to operations employees through early February and the other half is associated with buying fewer ASMs than we were planning.

In light of the significant impact from the omicron wave on available staffing, extending the temporary incentive pay and further reducing our capacity were necessary steps to stabilize the operations. Aside from these impacts, we would be on track with our previous unit cost outlook. Market fuel prices have continued to rise here, which also resulted in a $0.10 increase in our fuel cost per gallon guidance. Our estimated first quarter fuel price in the $2.25 to $2.35 per gallon range is also roughly $0.25 higher than our first quarter 2019 fuel price and that’s inclusive of an estimated $0.35 of hedging gains here in the first quarter.

Turning to our full year guidance, at Investor Day, we were planning for capacity to be roughly flat versus 2019 levels with no material impact from the omicron variant on either revenues or costs at that time. Fast forward to today, the impact from the omicron variant on available staffing has led us to reevaluate our first half 2022 capacity plans, in particular, March through May. Our planned flight schedule adjustments take some capacity upside optimism off the table for this year and reduces our full-year 2022 capacity outlook by about 4 points from roughly flat to down 4% versus 2019.

I’ve already covered the $150 million of additional incentive pay in the first quarter and in order to be more competitive on the hiring front, in particular for ground operations, we are raising starting wage rates from $15 per hour to $17 per hour, which is estimated to be a $20 million to $25 million total impact to this year. And of course we have contemplated labor rate inflation in our guidance as best we can for this year, understanding about the market is somewhat uncertain.

This is clearly not where we hope to be along our recovery curve nearly two years into this pandemic, but we are making great progress. While we must remain nimble in this environment and take the necessary actions to take care of our employees and provide a reliable product for our customers, we are very focused on the long term and determined to get back to 2018 levels of productivity and efficiency as we shared with you all at Investor Day. As Bob said, our goal is to get there by the end of next year.

Although it is early, based on our current plan for 2022 and preliminary plan for 2023, we expect 2023 CASM-Ex will decline year-over-year compared with 2022. Longer term, our framework that we provided at Investor Day remains unchanged and that includes a post pandemic target a mid single-digit ASM growth accompanied by low single digit CASM-Ex growth. I want to be clear that our longer term CASM-Ex framework includes an estimate for labor rate increases as best we can estimate today.

Turning to fleet, we currently have 77 MAX from orders and 37 MAX options with Boeing this year, while our plan assumes, we will exercise the remaining 37 options this year. We maintain the flexibility to evaluate that intention as decision points arise. We continue to believe that taking the additional options this year will yield a positive NPV on aircraft replacement if we don’t deploy them in the network.

As I have mentioned to you all before, we won’t incur a material CASM-Ex penalty from holding on onto extra aircraft in the event we temporarily park them of our Dash 700s, while capacity is moderated this year. As we work our way back to an efficient utilization of the fleet, we remain in the fortunate position to have the flexibility needed with our retirement plans without a financial penalty.

I’ll wrap up with a quick note on our balance sheet strength. We ended 2021 with liquidity of $16.5 billion. Our leverage is at a very manageable 54% and we continue to be the only U.S. airline with an investment grade rating by all three rating agencies, which I believe is one of our key competitive advantages. We have ample liquidity that allows us for further cushion in the event of further COVID wave. Overall, our balance sheet strength puts us in a category of one in terms of our ability to withstand shocks and remain financially healthy.

With that, I will turn it over to Andrew.

Andrew Watterson — Executive Vice President and Chief Commercial Officer

Thank you very much, Tammy. I’ll also start by extending my gratitude to Gary. I’ll be forever grateful for all that he has taught me with his words and his actions. I’ll provide some additional color on our revenue trends and outlook and point you to our earnings release for more detail. Looking back to our last earnings call in October, we were dealing with a delta variant. The negative revenue impact to Q3 was $300 million. At that time, we estimated a negative revenue impact to Q4 of $100 million.

Revenue trends have begun to pick up — pick back up and stabilized in mid September and our outlook called for a sequential monthly improvement in revenues throughout Q4. We reaffirmed this in our early December investor update and we closed the quarter strong. Our operating revenues finished within guidance down 11.8% and managed business revenues came in better than guidance down 50% in December. We saw a solid leisure demand for Thanksgiving and Christmas and business demand held up well with positive momentum from GDS and selfless business.

The negative revenue impact from the delta variant came in lower than we thought at around $60 million as we saw continued rebound in demand and yields throughout the quarter. However, we saw some choppiness in late December from decelerating bookings and increase in cancellations. We had a $30 million negative revenue impact from the omicron variant as COVID cases increased. Combined, this $90 million COVID impact to Q4 was slightly less than our original estimate of $100 million from COVID as we were able to mitigate some of the load factor decrease through higher yields.

And of course the most notable item in Q4 was incremental revenue from our new credit card agreement with Chase, which we covered in Investor Day and included in our most recent revenue guidance. While we can’t share the specifics about the incremental revenue from our new credit card agreement, you can see that other revenues in fourth quarter 2021 increased 20% compared with Q4 2019, far outpacing the recovery in passenger revenue and we are on track for expected benefits in 2022. Our new markets continue to develop and perform overall in line with expectations aside from the impacts from the delta and omicron waves. Hawaii markets also showed improvement and all of these markets trended in line with the broad-based improvement we saw across the rest of the network.

Now looking at first quarter, we estimate the weather related and staffing related flight cancellations in January, resulted in a $50 million negative impact to operating revenues. Additionally, bookings have slowed for January and February, which are seasonally low travel periods anyway for leisure. And trip cancellations were running quite high beginning in early January, but have moderated and are back to normal trends. We expect the omicron related negative revenue impact to January and February combined to be roughly $330 million. Like the delta variant, the impact of omicron related trip cancellations has been mainly focused in the close-in window and we remain optimistic about the likelihood of demand recovery in time for spring break travel.

On the corporate travel side, the business demand we experienced in December has slowed, but we continue to believe there’s pent-up demand for business travel and we are hearing from many of our corporate customers that they intend to ramp up travel post President’s day, I think that will depend on where we are with COVID case counts and hospitalizations, but we are encouraged by what we’re hearing from our customers in terms of their future travel plans. We expect first quarter managed business revenues to be down 45% to 55% versus 2019 and improve sequentially from January through March.

And our Southwest and GDS business initiatives is also on track for expected business in 2022. When you put all these moving parts together that gets us to our first quarter operating revenue guidance of down 10% to 15% versus first quarter 2019. This outlook is in line where we were in fourth quarter, but we are currently expecting a step change in improvement in March. As far as our other initiatives, new fare product remains on track for deployment by midyear as the new revenue management system continues its progressive rollout.

And lastly, we’re in the process of adjusting our published flight schedules in March to May in order to further support the operation and adjust available staffing trends. The results of this exercise combined with the flight cancellations we have experienced so far this month, is a 3-point reduction in first quarter 2022 capacity from down 6% to down 9% compared with first quarter 2019. And for full-year 2022, as Tammy mentioned, is a 4-point reduction from roughly flat to down 4% compared with the full year 2019.

Our flight schedules remains subject to further adjustments if needed. But while this is a slight delay to our previous capacity plan, we still have time to get back on track. As of March 2022, we are roughly 75% restored based on trips and we continue to expect to restore the vast majority of our route network by the end of 2023.

And with that, I’ll turn it over to Mike.

Michael G. Van de Ven — President and Chief Operating Officer

Well, hey, thank you, Andrew, and hello everyone. Our people did face quite a bit of adversity in 2021 and I just I’m really proud of their tremendous finish to the year. And they’ve built quite a bit of momentum thus far into 2022. As we’ve all said we’ve moderated or we began moderating our capacity in the fourth quarter to provide more staffing cushion to the environment. But at the same time, we knew we had some peak holiday travel periods over Thanksgiving and Christmas through the New Year’s timeframe and we really did jump up our daily trips and we needed all hands on deck to those periods and we incented folks and we urged them or those that were willing to pick up open time or voluntarily work on their days off with premium pay.

And that certainly worked. Our people really responded. So if you exclude the day of Thanksgiving, we averaged about 3500 trips a day during that Thanksgiving holiday period and that was roughly 320 trips a day above the weeks leading into Thanksgiving. And our on-time performance of that period with 87% and that was better than our five-year average. So, we ran a similar play over the Christmas holiday and our daily trips there increased to roughly 3600 a day and again our people responded.

So normally during the Christmas holiday, we deal with weather, but this year, we also saw the beginning of a sudden in the surging spike in COVID cases and because we had those people to pitch in to pick up extra shifts during that week of Christmas, we had a completion factor of 99.2% and we had less than 1% of our flights canceled in the face of that COVID surge. All told, we ended up the fourth quarter with an on-time performance of 72.6 mainly due to some of the challenges we faced in October.

That’s certainly not up to our standards. We must do better and we will, but our holiday performances were very good and we know that we can operate in our peak travel days when everyone is available. So we really have momentum to build on. So, in contrast to those previous holiday periods, January started in the face of severe weather and this omicron variant spreading rapidly. And as Bob mentioned, we had roughly 2.5 times the number of employees with COVID cases for omicron than we did with delta and we had roughly 5,000 employees become sick in the first three weeks of January.

And so the biggest impacts or in terms of flight cancellations for the period of time, the first week of January, January 1 through January 7, and in that we canceled roughly 3800 flights, about 1900 of those were for weather and about 1600 of those were for staffing. And then our on-time performance of that period was 41.5%. So, we reinstated the incentive pay program to encourage. again, those who would come in and pick up extra shifts and help cover the flight schedule. And again the response was superb.

We got all that implemented and so from January 9th through the 25th, our on-time performance jumped to almost 87% and that leads the industry for marketing carriers and the incentive pay program runs through February 8th. We’re also benefiting from a decline in our employees that were sidelined due to COVID, our case counts peaked in that first week of January and just by way of example, we had over 700 pilots and 1500 flight attendants that were able to work in that timeframe and thus the incentive program to help cover those that were out. Those COVID numbers have dropped substantially since then to roughly a 100 to 150 people for each group and that’s a lot closer than what — to what we originally expected.

Next, we continue to aggressively hire. Bob mentioned that getting staffed is one of our key objectives for 2022. We also want to make progress toward our historic operational reliability and efficiency metrics and then a lot of ways those go hand in hand as we’re not operating at optimal levels today nor is our network restored to where we want it to be relative to 2019. For the over 8,000 employees that we intend to hire this year, about 40% of our flight crews, about 40% of them are ground operations. So, it’s very heavily operations focused to support the schedule this year and beyond as we resume the growth.

As we restore the route network this year and into the 2023 that should provide the foundation to recapture better operating leverage. And we’re also working on other initiatives to improve efficiencies. Of course, we’ve got the fleet modernization cost initiative, but we’re also working on things like enhancing our turn times, which are already the best in the industry, expanding self-service options for our customers and investing in daily schedule management tools, which will help us manage regular operations more efficiently. So we’ve got many items in our technology and process improvement pipeline in order to support our low cost position within the industry and improve our overall efficiency and our resilience.

Just in closing, as we move forward into 2022, we have an exceptional order book for the fleet with its economics and its flexibility. We have new technology foundations in place for our maintenance and our airport systems. We have a laser focus on getting staffed and running a reliable operation. And we’re building an operations modernization portfolio of initiatives that I touched on. And our employees have sacrificed, they’ve worked hard through a challenging and ever changing environment. And I think that positioned us well to carry this January momentum through the first quarter and beyond. So, I am immensely grateful for their grit, their determination and of course their care for our customers.

And so with that, Ryan, back to you.

Ryan Martinez — Vice President of Investor Relations

Well, thank you, Mike. I believe we have analyst queued up. So Chad if you’d please go ahead and begin our analyst Q&A.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And the first question will come from Jamie Baker with J.P. Morgan. Please go ahead.

Jamie Baker — J. P. Morgan Securities Inc. — Analyst

Hey, good morning everybody. Just quickly, Gary, when I first met you back at Kidder, Peabody, I could not have been less relevant, but you showed me just as much respect as you did to the Glenn Angles and Kevin Murphys and San Buttrick’s of that era and it really meant a lot to me and it gave me the confidence to continue on my career trajectory. And I just wanted to thank you for that. I will sincerely miss speaking to you on these calls, but I do look forward to hopefully being a thorn in Bob’s side.

Gary C. Kelly — Chairman of the Board and Chief Executive Officer

I would expect not too less.

Jamie Baker — J. P. Morgan Securities Inc. — Analyst

Okay, good. I’ll start with Tammy though. So, Tammy you emphasized that your cost outlook does envision higher wage rates, but I had ask you about that at Investor Day, but at the time you said you weren’t accruing for new labor contracts. I think I probably got my wires crossed. Could you just clarify that there is something for new union contracts in your forward cost guide. Is that accurate?

Tammy Romo — Executive Vice President and Chief Financial Officer

Yes. And thanks, Jamie and I appreciate the question there. So, yes, we are not currently accruing for open labor contract today. So, we are not accruing for that. So, there is nothing in our first quarter guidance. Longer term though we have incorporated our best estimate of annual labor rate increases into all of our targets. So, here — and then here, just to be clear for 2022, we know we have some inflation here. So we’re doing our very best to incorporate what we think we’re going to incur here in 2022. So hopefully that clears that that up for you.

Jamie Baker — J. P. Morgan Securities Inc. — Analyst

Exactly. It does. Thank you very much. And any update on the fourth fare run that you intend to load this spring? Are you still on track? If you’re not ready to disclose what it includes, could you share any ideas that may be you ruled out from a pricing perspective?

Andrew Watterson — Executive Vice President and Chief Commercial Officer

Hi, Joe, it’s Andrew to answer your question. We’re still on track for a mid-year, a rollout of that we’re going through right now. The technology, user acceptance and it’s all going well. We expect this to be above one to get away. So we’ve rolled out taken away features from customers and charging them more. These will be features that are in addition to want to get away for which we believe customers will happily pay a little bit extra. We also believe these features will be relevant to business travelers, especially from small and medium-sized business travelers. So that’s how we want to position it versus say the fair part just above and just below it. Does that answer your question.

Jamie Baker — J. P. Morgan Securities Inc. — Analyst

It does indeed. Thank you very much. Yeah. That’ll be it. I’m sure a lot of accolades coming for Gary. So, I kept it bunchy. Take care.

Operator

And the next question will be from Duane Pfennigwerth with Evercore ISI. Please go ahead.

Duane Pfennigwerth — Evercore Partners — Analyst

Hey, thanks. I don’t actually have any ancient Wall Street history, but I did want to ask you, Gary, if you received any calls from music producers since your job to a recent tribute?

Gary C. Kelly — Chairman of the Board and Chief Executive Officer

We’ve always been very circumspect about confidential information here. So, I mean, I have to decline to answer your question.

Duane Pfennigwerth — Evercore Partners — Analyst

Fair enough. I wish you well on that journey. With respect to the 4-point cut to full year capacity, is that all about the rate of demand improvement in first half or was any of that a function of kind of looking at the operation and deciding you needed even more buffer on staffing?

Tammy Romo — Executive Vice President and Chief Financial Officer

Yes, I’ll jump in and Andrew and others may want to chime in. But I know we — it really was more about adjusting, being a little more cautious with regard to our operations. Obviously, omicrons had a significant impact on us here in the first quarter. So, just, we felt that it was prudent to take some capacity out and as we have stabilized the operation and as you’ve heard us comment here, we’re doing a great job in that respect with really an outstanding performance here over the last couple of days.

Andrew Watterson — Executive Vice President and Chief Commercial Officer

I’d like to add to what Tammy said is it was designed to make it more operable and give cushion to the operation, so that’s both how much we’re flying, but also where we’re flying giving some of our ground based staffing shortages. So the combination of those two were on the crux of it. Obviously, we look at demand, we’re making those adjustments, but the motivation here was operational reliability.

Gary C. Kelly — Chairman of the Board and Chief Executive Officer

Yeah, Duane, the only thing I would add too is that the — it’s all the gas right at this point. So, we’re making our best guess based on — we have terrific staffing plans. I’m confident we will meet those here in 2022. If we get ahead of those, obviously, we preserve the ability to sort of work on our capacity on the other end and the back end of 2022 we just don’t know yet, but yeah, it’s really all due to staffing at this point. We’ve got to run a reliable operation. We’ve got to have enough staff cushion.

Duane Pfennigwerth — Evercore Partners — Analyst

And then you mentioned it with ground handling, but wonder if you could provide some anecdotes of where you know today you’re obviously overstaffed from a longer-term perspective? What are some of the functions beyond ground handling where you’re keeping — actively deciding to keep a hire buffer and where predictability is just not there yet? Thanks for taking the questions.

Gary C. Kelly — Chairman of the Board and Chief Executive Officer

Yeah. I might separate sort of our experience at the beginning of January and then the rest of the year as we had a really rapid rise in COVID cases in the first couple of weeks of January. Yet, you had an overall Southwest Airlines impact operationally and then you had very locational impacts. An example would be the Denver ramp. We had a rapid rise in our Denver — cases on the Denver ramp and we literally had to quickly moderate the Denver schedule to be able to operate there.

But I think, it’s really — the overall adjustments to capacity is really all groups. We need pilots, we need flight attendants, we need ramp staffing and you need the appropriate amount of buffer in all of those areas until we sort of see our way past COVID and understand what more normalized staffing, more normalized behaviors, more normalized sick leave looks like. So, I would argue we — it’s really not one group, we have buffer or looking for buffer in all of those groups.

Duane Pfennigwerth — Evercore Partners — Analyst

Very helpful. Thank you.

Gary C. Kelly — Chairman of the Board and Chief Executive Officer

You’re welcome.

Operator

And the next question will come from Hunter Keay with Wolfe Research. Please go ahead.

Hunter Keay — Wolfe Research — Analyst

Thank you. Yeah. To reiterate to you Gary, you’re legend man. It’s been a pleasure. Thank you for keeping it interesting over the years. I had a question for you. And it’s — I’d love to get your parting thoughts on the industry’s outlook over the next two to three years. It’s not a question about Southwest, I’m sure you’re going to say you’re leaving the company in a good position to compete and win and succeed, but as someone that’s made a lot of good predictions over the years. What is your view, your sort of parting view on how the industry unfolds competitively, whatever growth wise over the next two to three years?

Gary C. Kelly — Chairman of the Board and Chief Executive Officer

Well, thanks, Hunter. Well, I don’t know how good of a prognosticator I’ve ever been. I don’t think of myself that way. I do think that if you compare the U.S. to other countries, the U.S. is left the commercial airline industry in pretty darn good shape and were it not for the CARES Act, I think we’d be having a very different conversation. So, I think, it’s just important to acknowledge that upfront. Having said that, there are still significant variations.

So, when you talk about that industry, it’s hard to think about it that way because there’s strong and there’s weak. There are strong balance sheets or weak balance sheets. And I think what we’ve experienced in 2021 is really humbling. A year ago and I — you and I haven’t talked in a while, but I think everyone I’ve run into or had to sort of videotape replayed, I would have never bet a year ago that this is where we would be here in early 2022. I thought we would have this pandemic beat and behind us and it’s far from that.

So I think that just sort of provides the same and even bigger quandary now which is, where we think we’re going to be with the pandemic two years from now. We were honoring a former Dallas Mayor earlier this week and he and I were having the exact same conversation and his guess was 10 years, we’re going to be dealing with this for 10 years. So, I think that has a direct correlation with travel, tourism, hospitality, restaurants, all of that. We just have to be — we need to hope for the best, plan for the worst, is sort of age old advice that we’ve all gotten.

It does feel like business travel wants to come back and I think that’s encouraging. We were hoping for stronger business travel here in Jan, Feb than what we’re realizing. We all know why that hasn’t happened. So just again a perfect example. But I think the industry is pretty darn well capitalized to take on a lot of debt, which is going to have to be carefully managed. Its we’re going to have to be more heavily dependent on Consumer Travel than where we were before. I think international also kind of fits into that that category of — it’s probably different in the future than it has been in recent history and we’ll just have to be prepared to be more successful domestically over the next couple of years.

But in my opinion and that’s why I put it in my remarks, I think it’s the best service and the lowest price wins. And if you have that combination within the industry, you’re going to win. I think it is a low cost gain always, but I think that’s even more acutely important right now and that will be a laser focus for our leadership team certainly for the next couple of years.

Hunter Keay — Wolfe Research — Analyst

That’s very helpful. Thank you. I appreciate that. And then I asked you this question about a year ago, Gary, but you’re never say never guy, if there was anything you’d never say never to. I guess same question goes for Bob. Is there anything that we can expect that you would say you’ve never do as CEO or Southwest would never do as long as you’re running the company?

Robert E. Jordan — Executive Vice President and Incoming Chief Executive Officer

There’s some easy things here. We’re not going to charge for bags. We’re not going to have change fees. I mean, we’re going to stay — we’re going to always be transparent, we’re going to be open and honest with our consumers. Now, things changed over the years, for sure, as in my 34 years here at Southwest, we’ve changed our boarding, we’ve changed some of our product, we’ve added WiFi, we’ve added Rapid Rewards program. So, things always change, but we’re always going to lean to our customers. So, yeah, I think the number one thing that comes to mind obviously is no bag fees, no change fees. The other things not going to change. We are going to treat our employees right. We’re going to treat our customers right. And we’re going to stand for service and we’re going to stand for serving others before self.

Hunter Keay — Wolfe Research — Analyst

Thank you very much. Congratulations, Gary.

Operator

The next question will be from Helane Becker with Cowen. Please go ahead.

Helane Becker — Cowen Securities — Analyst

Thank you very much, operator. Yes, Gary. I’m going to miss you as well. In fact, you remember our first meeting when you tell me and we were sitting in my office at Lehman Brothers. And you know it just seems like we’re too young to retire and I wish you the best in whatever you decide to do with your free time going forward, although maybe not so much free time you’ll have. So, thank you actually for everything.

And then separate from that, my question is really, not sure who wants to answer has to do with the credit card program. Is there a way for Chase to separate out for you the charges that come for travel and the airline versus charges that come for stuff? Because as you think about going forward, the percentage of stuff should decline as people have their Pelotons and their computers and all the other stuff they bought during the pandemic and they should start to shift back to travel. So I’m wondering if Chase can parse that out for you? And if you can’t gain any intelligence from that?

Andrew Watterson — Executive Vice President and Chief Commercial Officer

Hi Helane, it’s Andrew. Yes. As part of our partnership with Chase, we do receive that on a regular basis and we review it on a regular basis. And indeed as if I were seeing through macroeconomic indicators, charges during the pandemic skewed towards goods and less towards services. And then the services would would also mirror the pandemic and we could see when restaurants were more active with our card members or flights activity as well.

And so that is something that I think tracks very well with what you see in that macroeconomics when you have it sort of at a high frequency basis like this, when we see it a bit earlier that does help us with understanding the pace and duration of these waves. So it’s been very useful for us and we expect skew towards services going forward, which obviously would be beneficial to our industry.

Helane Becker — Cowen Securities — Analyst

Right. So you would expect that the rate of growth would what accelerate with services or decelerate?

Andrew Watterson — Executive Vice President and Chief Commercial Officer

I think it would accelerate given the composition of people spend, services are underweight now versus what they were in 2019 and given the customers have very good balance sheets themselves, the stimulus program of it has put a lot of cash in people’s pockets and so they have some pent-up demand of potential expenditures above and beyond their kind of normal salary based or compensation base extending. And so we expect that composition to revert back more to normal as we would get past the pandemic whatever that might be, as Gary pointed out. So, therefore services spending on our card and the economies as a whole should increase as the health crisis abates.

Helane Becker — Cowen Securities — Analyst

Okay, that’s very helpful. Thank you. And then on the constraining spring capacity due to labor constraints, will you be able to offset that with pricing?

Tammy Romo — Executive Vice President and Chief Financial Officer

Helane, I’ll jump in on that. Obviously, we don’t comment on pricing. So, we — as always, we’re going to work hard to achieve our financial objectives, but we’ll decline to comment specifically on pricing.

Robert E. Jordan — Executive Vice President and Incoming Chief Executive Officer

And I might just point you to back to the fourth quarter, which is we had — I think we had a really strong performance revenue, pricing fair yield. So, I think on sort of my memory, it was 92% or so of capacity restored. We had 88% of revenues restored, which is leading in the industry and yields and fares were just slightly below 2019. So, not speaking to your direct question, but just if you look at the fourth quarter, we had a very strong revenue performance.

Helane Becker — Cowen Securities — Analyst

That’s very helpful. Thanks, everybody, and bye, Gary. Very sad.

Operator

Thank you. And the next question will come from Mike Linenberg from Deutsche Bank. Please go ahead.

Mike Linenberg — Deutsche Bank — Analyst

Oh. Hey, good morning everyone. Gary, it goes without saying. I mean you’re going to be missed and to be on a Southwest conference call without Gary Kelly, we’re going to get used to it, but Bob is the right guy. In that regard, I do you want to ask one final question on a call. In your new role, I should say new role, but as you’re continuing role on the Board, will you still dress up for Halloween?

Gary C. Kelly — Chairman of the Board and Chief Executive Officer

I don’t think anybody can stop me. So, it’s one of my pure joys in life. And I do have grandchildren who get a kick out of it. So — but it’s all about me. I really enjoy dressing up.

Mike Linenberg — Deutsche Bank — Analyst

That’s great to hear. So Gene Simmons will live on through Gary Kelly.

Gary C. Kelly — Chairman of the Board and Chief Executive Officer

Yeah. I’m honored, he’s still my pal.

Mike Linenberg — Deutsche Bank — Analyst

That’s awesome. All right, well onto a more serious topic here, I just — I want to go back to the capacity change for 2022 and I guess Tammy this is to you. For the March quarter, you’re saving 3 points, but for the full year you’re cutting 4 points and it’s obviously having a tremendous upward pressure on your full year unit cost, And you did highlight that the June quarter looks like it’s going to take obviously a big cut there.

But as I think about the math, it just seems like that you are taking a lot out, you did say you’re being cautious, it’s all about returning operations, returning the integrity of the operations back to a normalcy. It does feel like it’s extra conservative or are you — does that down 4% for the year assume that you’re not going to exercise the 37 remaining options? Can you just give some additional color there, just it seems sizable?

Tammy Romo — Executive Vice President and Chief Financial Officer

Sure, I’ll give some color here. And then [Technical Issues] yeah, we — I guess we haven’t given up here on adding additional capacity in the second quarter. Again, we’re just going to have to see how things go here on the staffing front. And obviously as we’ve already said, our priority is on the operations. But in –wherever we end up with regard to our capacity for the full year, at least at this point in time, we intend to exercise all of our remaining options.

Mike Linenberg — Deutsche Bank — Analyst

Okay.

Tammy Romo — Executive Vice President and Chief Financial Officer

And the reason for that is really straightforward. Mike, we have a really strong NPV on those aircraft either way. Obviously, we hope that we’re putting those into growing the network either in 2022 or 2023, but we have a lot of flexibility here and the fact is we just don’t have to decide right now. So, if we do not have a need for those in the network, we would just simply retire and accelerate the retirements of our Dash 700. So, we’re in the– we got the good fortune here of having tremendous flexibility, which was by design when we work through our order book with Boeing.

Robert E. Jordan — Executive Vice President and Incoming Chief Executive Officer

And Mike, I would just add to that. This is all our forecast. If you look at omicron and how quickly we have adjusted, I think my memory is our network planning team is doing 2 or 3 times the number of changes that they would typically. And so while we’ve got a great plan for ’22, it all comes down to hiring and I’m pleased that we’re on our hiring plans for the fall and we’re on our hiring plan so far for January. But in the case that we were able to beat those, we’ve got up — you’d have some upside, but we’ll just continue to adjust.

I think if you look at our fleet today, again, because we are flying and then therefore our ASMs are constrained based on our staffing, you probably have 5% to 6% of the fleet that is effectively un-flown. In other words, we could be generating 5% to 6% more ASMs with the current fleet, but for the staffing. So we’ll work really hard to make progress there. And so I wouldn’t call it — we’ve got a great plan, but I wouldn’t call that you’re done yet in terms of capacity.

Mike Linenberg — Deutsche Bank — Analyst

Okay. So it’s very fluid. And then just. Bob, I guess, just as a quick follow-up and this follows on Hunter’s sort of the never saying never, you did mentioned change fees, you talked about bags. I think I saw about a week or two ago, there was something about seat assignments. But again, it may have been a reporter putting words in your mouth, anything that you can highlight with respect to that? Maybe it was a misinterpretation?

Robert E. Jordan — Executive Vice President and Incoming Chief Executive Officer

No a reporter would never put words in your mouth, right? No, it was just a — I was — it was just an illustration that was sort of going through the kinds of things that over time I think you have a duty to look at, just like we have a duty to — as Mike talked about our operational tools, we have a duty to look at our customer experience and how to enhance that. And at some point, I think, just like we did years and years ago, we will probably want to resurrect the work that we did there and just understand what our customers prefer, what our business customers prefer, what that does to the efficiency of the operation. So, it was no prediction at all, it was just as an example of the types of things that you do have to take a look at over time.

Mike Linenberg — Deutsche Bank — Analyst

Great, very good. And thanks again. Gary.

Operator

The next question will be from Savi Syth from Raymond James. Please go ahead.

Savanthi Syth — Raymond James and Associates — Analyst

Hey, good afternoon. Just kind of curious on the managed business revenues, I know you kind of talked about expecting a step change in March, but how does kind of the trends you’re seeing today compared to how you exited the year and just any color on how much that is getting boosted by some of the GDS initiatives that you are — that you can roll it out.

Andrew Watterson — Executive Vice President and Chief Commercial Officer

Sandra. I’ll start off by saying, we see the managed business travel like overall travel fluctuate with COVID wave. So, there’ll be a period of time early in the wave where cancellations surge and then bookings slow down and then the next part of that is as cases and hospitalizations start to come down on back side we see those cancellations attenuate and bookings pick up. So, we’re in the back side of that — the bookings right now for managed business and so we can see then that as we go back on its trend that we saw throughout ’21 where — but these up and downs, you are on a solid trend from January through December.

Now with regards to our initiatives, we can see that we are having a shift of travel from our previous channels to the GDS. We also can see those incremental on top of that. Now because COVID has created such a disruption in travel patterns, we don’t want to extrapolate and give final numbers on that, but we already see that we are achieving our business case and it is causing some channel shift, but that was all part of our plan to be able to offer our corporate customers the choice of channels from which they want to buy with Southwest Airlines.

Savanthi Syth — Raymond James and Associates — Analyst

Makes sense and just curious, some of shifting gears a little bit on the regional airline side. You had some of the legacy competitors cut a lot of small markets, regional airlines are struggling a little bit from a piloting standpoint as well as some of those — some of the 5G issues. Curious if you are seeing a benefit given that Southwest does fly into some of the smaller markets than you see some new LCCs flying. If you’re seeing any benefits from maybe this kind of capacity that’s been constrained?

Andrew Watterson — Executive Vice President and Chief Commercial Officer

I can certainly read about their unfortunate situation. However, the COVID wave, it’s such a predominant force and bookings right now, it’s really hard to tease out a lot of other trends within that. And so right now, as Bob and Tammy mentioned, we’re managing our network for our customers and our employees. And so that’s really we’re aiming at and so we don’t really kind of look outside of our line so to speak to what’s going with others to be opportunistic because right now we’re just try to keep ourselves good stable operation and achieve our financial goals.

Savanthi Syth — Raymond James and Associates — Analyst

Makes sense. All right. And then, Gary, I’d like to echo a lot of the comments that have been shared on this call and wish you the best. Thanks.

Operator

And the next question will be from David Vernon from Bernstein. Please go ahead.

David Vernon — Bernstein Research — Analyst

Hey, good afternoon everyone and thanks for the time. I wonder if you could give us an update on where you are with Boeing on getting the MAX 7 certified? And as you look out over the next two, three years. Obviously it’s 136 firm orders, 60 or so more options. How do we think about retirement expectations in relation to that? Should we be thinking that as these aircrafts are coming in, you’re going to be retiring or getting rid of some of the older classics?

Michael G. Van de Ven — President and Chief Operating Officer

Yes. So, David, this is Mike. So, we’ve got about 450-ish 700s and so at least half of our order book will probably be focused on replacing those airplanes, Boeing is telling us that they’re targeting ATC for the MAX 7 by the end of the first quarter and of course that’s contingent on the FAA review process, which is a little bit different for new airplanes after the MAX grounding. Once they get that type certificate, it will take us about seven months or we’re planning on about seven months to be able to bring that airplane on our operating certificate.

So, we’ll need to do things like get performance data from Boeing for the airplane, ingest that performance data into our systems, do all the quality assurance work on that, update our manuals and then get our own CMO to approve our manuals before we can add the airplane to our op spec. So, we’ve just got — we’ve got a lot of flexibility in that order book, Boeing is a very good partner with us and — so we still expect to take the 114 airplanes at this point, but we may not be flying the MAX 7 until early 2023.

David Vernon — Bernstein Research — Analyst

Thank you. That’s very helpful. And Andrew maybe just as a quick follow-up, I’m assuming that despite the lack of business travel, the selling efforts on the corporate side have been been continuing through the pandemic. Is there any color you can give to us in terms of how GDS enrollment has impacted your traction in terms of like the number of corporate wins you have or the win rate and bid process? And if you can give us to help us gauge Kind of how effective this is going to be in terms of the competing for corporate share going forward would be really helpful?

Andrew Watterson — Executive Vice President and Chief Commercial Officer

Certainly. I’ll try give some color. You can also look in the ARC data because we win the GDSs, but also settled in the ARC. So you can track for yourself what we’re selling in ARC as well. But if you look at our accounts even going — before going into the GDS, especially going to Sabre, we had built up our corporate sales force in anticipation of this and our overall effort had increased the number of our accounts like we shared at Investor Day.

Now these accounts they buy through multiple channels already, some maybe 100% one channel, but today you take our largest corporate clients, and they will buy through — swap is they will buy through our Direct Connect and now they’ll buy through GDS as well. It depends on the travel purpose as well as the subsidiary or population group within that company of how they buy. So, what we’re doing is we’re letting them move in between. And we do see some like the government moving pretty strongly towards some GDS transactions.

We see professional services not really abandoning some of the first to the Direct Connect and the swap is and adding on GDS on top of it. So, it really depends on the travel purpose and on the corporation as to which channel they prefer, which is the thesis of our strategy of let the customer choose and get out the way instead of having friction. And so, as I mentioned earlier, the COVID waves are really scramble lot of trends, so you can’t be as precise as it would be in normal times, but at the highest level, we do see incremental volume or getting and we’re hearing from corporate. So, they are giving us incremental volume when we speak of them because of these channels.

David Vernon — Bernstein Research — Analyst

Thank you. And Gary, thanks for all the time. And congratulations on the move up.

Operator

Thank you. We have time for one more question. We’ll take our last question from Sheila Kahyaoglu from Jefferies. Please go ahead.

Sheila Kahyaoglu — Jefferies — Analyst

Thank you, Gary. I echo those comments and congratulations. Maybe if I could ask about the bottleneck in terms of ramping capacity from ’22 and ’23. It seems like a lot of the industry has faced supply constraints rather than demand constraints, especially domestically. How do you think about Southwest overcoming those challenges that you take on 200 aircraft or so? And I understand maybe half of those are for replacement.

Gary C. Kelly — Chairman of the Board and Chief Executive Officer

Well, I’ll jump in and start, you all can add. So, in 2021, we make some assumptions about the operating environment that we would be in and the environment that people would live in, and it was just clear to us as we went to this delta variant that environment, it was not not appropriate. And we’ve spent a lot of time in 2021 reacting to that, caused our crews to be rescheduled, it caused a regular operations and we had a reliability challenge for the airline.

Our approach in 2022 really is to just accept that the environment that we’re in currently, might be the environment that we’re in for a while and go ahead and plan the airline and staff the airline like that. And so that’s what you’re seeing with respect to the capacity adjustments here in 2022 is just making the assumption that let’s don’t assume things are going to get better until they actually do.

So, we have a very aggressive plan to go hire people. I think our wage rate increases, especially in the front line for the ground will help us accelerate our staffing. I think we’ll have plenty of access to pilots and flight attendants. So, I feel good that our staffing plan is going to come to fruition. And then the question just is as we bring the people on and we mitigate the premium pay, we mitigate some of the regular operations. We run a more stable operation, can we — will we see different behaviors and if we do that gives us upside.

Robert E. Jordan — Executive Vice President and Incoming Chief Executive Officer

Well and Sheila, to add just sort of the — what’s the constraint the — at the beginning of the pandemic, it was all about managing down your capacity because of demand, demand fill 97% and then stayed down 70% for a long time. So, it’s all about managing to lower demand. Well, that’s not where we are today. Again sort of back to the fourth quarter, we had strong — obviously strong revenue, strong yield, strong fare, strong demand overall, and that’s what business demand down 50%. So very strong leisure and my leisure has returned to 2019.

Obviously that was interrupted by omicron, but I’m confident that the leisure demand is restored and we just need to get the staffing levels to the point where we can operate our aircraft, operate them reliably, produce the kind of operational performance at our customers need and want and deserve and it’s just going to take staffing to do that.

And obviously that staffing and a strong labor market, which is why you saw us raise our starting wages, but no, to me the moderation is all about staffing not because of any concern over demand. And so then again you later on in the fourth quarter the 50% recovery in business continues to recover in 2022 and we’re hopeful that it recovers by the end of the year to say down 10% to 20%, I think we’ll have plenty of demand, it’s all about getting the hiring to restore the capacity.

Sheila Kahyaoglu — Jefferies — Analyst

Thank you.

Robert E. Jordan — Executive Vice President and Incoming Chief Executive Officer

Thanks, Sheila.

Ryan Martinez — Vice President of Investor Relations

All right. Any last thoughts before we wrap up.

Gary C. Kelly — Chairman of the Board and Chief Executive Officer

Yeah. Thanks, Ryan. I just wanted to acknowledge all the kind comments from everyone. I’m very, very appreciative of that and some of the old timers cause me to reminisce when I started as CFO, it was 1989 and in those days, we didn’t do this. I talk — I was Investor Relations and Tammy is laughing because I had to beg her five years into this to come bail me out, but I did the Investor Relations. We had — the CFO, we had a controller and we had a treasurer and we achieved now, but we really achieved this. So, we had one assistant that supported all three of us and I did the Investor Relations.

So, we would send out — we had this auto fax system where we would fax out the press releases and then some of you would be really angry with us because you were at the bottom of the fax list, which meant that you were — I don’t know how long this damn thing took, but it was not instantaneous, so put it that way. And then I would talk to each analyst individually on the phone. And then when I couldn’t take it anymore. I said, a beg Tammy to come over from leading financial reporting to come to Investor Relations from the very — she was the very first Investor Relations Professional in the history of Southwest Airlines and she modernized all of the things that we enjoy today.

It took a while for her to beat that into me, but she eventually did. The other thing you cause me to reminisce on is, Tammy, who was and is a star, she moved on to other jobs and hired Marcy and then Marcy moved on to other jobs and now we hired Ryan and that’s pretty remarkable, 33 years’ time. We’ve only had three people leading Investor Relations. So I’m very proud of you guys. And I — and for all my friends here.

I will tell you and I’ve told all my Southwest colleagues this, I learn more from doing Investor Relations than I learned going to school, and the question is that you all have the ideas, the way you challenge me at least over the years has been invaluable and not to mention the very rich friendships that we had. Helane will remember and this I think I was controller at the time in the late ’80s, we would do a show at the big Shearson Lehman Hutton Investor Conference, which was multi-days and people would come, they would stay for days and then Southwest would put on this broad way like parity of the industry.

We pick on Frank Lorenzo especially who is a good friend of mine by the way and Crandall [Phonetic] and others, but Helane, I remember the first year that you came on working for Bob Joedicke, we parodied you and we had an actor walk across the stage, I don’t remember the song, but we had — we anointed Helane a Miss Shearson Lehman Hutton because she added a lot of glamor to the sales side analyst community to this day.

But in any event. I’m very grateful for the friendships, very blessed to have been in a really great company for 36 years and I just turn this morning that our new Parker was retiring in March and I didn’t translate that into what that means that this is his last analyst call and I was told that he reported that he’s done between being CEO and CFO 107 of these quarterly things. And I did the math on mine and I want every one of you to know that it’s a 134 for me. So, not that I’m keeping score with Parker, but I will leave you all with that and leave Southwest Airlines in great hands.

And as you all know, I’m not going anywhere, we got lots of work to do. And I’m going to be here doing my little part. So, Ryan, thank you very much. Back to you sir. Well, that’s fantastic. Thank you for sharing. Of course, you are a legend and I think you’re the GOAT, not any goat, but the GOAT. we will sign off here and that wraps up the analyst portion of our call today. I appreciate everyone joining and have a great day.

Operator

Thank you, ladies and gentlemen, we will now begin our media portion of today’s call. I’d like to first introduce Ms. Linda Rutherford, Executive Vice President, People and Communications.

Linda Rutherford — Executive Vice President People and Communications and Chief Communications Officer

Thank you, Chad. Thank you, Chad. We can go ahead and get started with the media portion of our call today. I just want to welcome everyone. And you can go ahead, Chad, if you want to just give them instructions to get queued up and we’ll get started.

Operator

Certainly, thank you. [Operator Instructions] And the first question will come from Kyle Arnold with Dallas Morning News. Please go ahead.

Kyle Arnold — Dallas Morning News — Analyst

I was wondering with those 5,000 COVID calls that you had in January, how much will fall out are you seeing from — are all of those individuals being sick themselves? Are you guys seeing much fallout from family members or from schools being closed, daycare, those kind of other hiccups that we’re seeing in the economy?

Gary C. Kelly — Chairman of the Board and Chief Executive Officer

Kyle, those were all people that had — were tested positive for COVID themselves. They weren’t not coming to work because of some family issues. They tested positive and reported the positive COVID to us.

Robert E. Jordan — Executive Vice President and Incoming Chief Executive Officer

And Kyle, the good thing too is the — different than delta, the cases came on really quickly. So, the rise was alarming, but on the other side, the fall in the cases was similar. So, the wave was very narrow, which was painful on the front end, helpful on the back end because we got people back a lot faster than delta.

Tammy Romo — Executive Vice President and Chief Financial Officer

One thing, but no doubt, everything that you mentioned, Kyle, I’m sure we were incurring to. It’s just been an incredibly challenging time to everyone. So, all the additional demands that households have now, I’m sure impacted that, which is be it caring for a sick spouse or child or a school closure or just dealing with everyday life. So, I think that would be on top of the numbers that we shared with you.

Kyle Arnold — Dallas Morning News — Analyst

I appreciate that.

Operator

The next question will be from Leslie Joseph from CNBC. Please go ahead.

Leslie Joseph — CNBC — Analyst

Hi, good afternoon, everyone. Thanks for taking my question. With your hiring for 2022, I was wondering how much of those — how many of those people are replacing other workers? And net, where do you expect to end up in headcount by the end of the year? And overall, do you expect salaries to be lower than 2019 before the pandemic as junior workers are coming in?

Gary C. Kelly — Chairman of the Board and Chief Executive Officer

So, Leslie, the 8,000 number that you hear, that would be the net increase in our full-time active equivalent employees. And then one of the benefits that you do get from hiring people is you do get to average down the scale increases in the contract. And we’ve got about, like I said earlier, about 40% of that group will be flat cruise, 40% will be ground ops, all of those are covered work groups. And so, I do think we have an opportunity on our wage rates as we have newer people come in to average those down. I haven’t looked and seen what that means exactly as compared to 2019, and we’ll just — that’s a good question.

Robert E. Jordan — Executive Vice President and Incoming Chief Executive Officer

And Leslie, I think…

Leslie Joseph — CNBC — Analyst

Okay. And then overall, your — sorry, go ahead.

Robert E. Jordan — Executive Vice President and Incoming Chief Executive Officer

Yes, one thing embedded in your question maybe and then just the numbers on the totals. I think maybe you were implying so what — is that an add and what’s happening to attrition? Our attrition is up — during COVID, our attrition is up modestly, but it’s not up alarmingly, which is a good thing. But sort of back to the numbers, I think we’re ending — we ended ’21 at roughly 55,000 active employees. You add the 8,000 plus and so the plan would be to end 2022 at about 63,000, 64,000 active.

Leslie Joseph — CNBC — Analyst

Okay. Thank you.

Robert E. Jordan — Executive Vice President and Incoming Chief Executive Officer

You’re welcome.

Operator

The next question will come from Alison Sider with Wall Street Journal. Please go ahead.

Alison Sider — Wall Street Journal — Analyst

Hi. Thanks so much. I think we’ve probably asked about this pretty much every quarter, but just curious what you’re hearing or what you’re picking up about the mask mandate and the likelihood it would get extended? Yes, just curious how you’re seeing that playing out in a couple of months.

Gary C. Kelly — Chairman of the Board and Chief Executive Officer

Hey, Alison. Well, yes, I don’t believe there is any current discussion about extending or terminating the mask mandate. I think it’s well established that once you’re onboard the aircraft, the environment is very healthy with the continuous air refresh. Adding the mask is an added layer of safety. And given the fact that we’re right in the midst of this omicron surge, now is not really the time to revisit that question in our opinion. And I think that’s representative of the A4A opinion as well. We survey our customers and there are — there’s still a significant number of customers, who feel safer with the mask. There will come a time when the mask won’t be necessary. I think we’ll look forward to that, but right now is not the right time.

Alison Sider — Wall Street Journal — Analyst

And I guess if I could ask about hiring and just kind of the challenging labor market. In addition to the minimum wage increase, just curious if there’s anything else you are doing? I know last year, you talked about kind of making on the spot offers and doing all these stop fares. Are you — are there any other kind of creative tactics here having to utilize to bring in all these people?

Robert E. Jordan — Executive Vice President and Incoming Chief Executive Officer

Yes, Alison, I think in the current tough environment, you use every lever that you have. And so obviously, you’ve seen us move our starting wage rates along from sort of where they were to 15 to 17. In some airports, there were even 20 at this point. We’ve got a team that’s worked very hard on the processes. So, how can you take steps out of the process? So if it took — I’m just making this up, but if it took 30 days to get from interview to hire, can we get that to 10 or 8?

Because the longer that process is, the more you run the risk that that person takes a job somewhere else. We’re doing instant offers in some cases, as you mentioned. We’re using different techniques to get people into the funnel of hiring. So a lot of social media, a lot of mining for information. So I would just tell you, we’re using every lever out there because it is — I mean, Southwest is a wonderful company. We are — we get our share of resumes and interest, but it’s just tougher than normal one. So we’re turning over every rock in terms of what we can do to hire employees. And a lot of that is, yeah, it’s about pay and it’s about pace.

Alison Sider — Wall Street Journal — Analyst

Thanks so much.

Robert E. Jordan — Executive Vice President and Incoming Chief Executive Officer

You’re welcome.

Operator

And the next question will be from Dawn Gilbertson from USA Today.

Dawn Gilbertson — USA Today — Analyst

Hi, good morning. Gary, you mentioned 1989 and I sound a little bit like Jamie Baker here, but I’m in possession of a Gary Kelly, Vice President of Finance business card. I’m wondering maybe I can monetize it through an NFT or something. I wanted to wish you well.

Gary C. Kelly — Chairman of the Board and Chief Executive Officer

Thank you, Dawn. I remember all the rough interviews I had to suffer through with you. So thanks for inviting me.

Dawn Gilbertson — USA Today — Analyst

A couple of questions here on the traveler front. First, pretty quickly on the March to May flight cuts, could someone put that capacity decrease into the number of daily flights for me and tell me like how much of that business is already on the books? In other words, how many people you’re going to have to notify again about schedule changes?

And then more importantly, on the new fare category. Bob, I’m wondering, I think Andrew mentioned, we’re not going to take anything away from one to get away. And I’m wondering if you’re willing to go on the record to say, I mean, with something like offering people who buy one — want to get away one bag instead of two, is that taking something away?

And on a related front on that, I’m trying to figure out what could you guys add that you don’t always have? And my mind goes to early boarding. So, are you considering adding early boarding, the EarlyBird fee, to that second fare category because I know you — in some test a couple of years ago, you called it, want to get away plus? And if you do include EarlyBird in this new fare category, would EarlyBird has an ancillary item go away?

Gary C. Kelly — Chairman of the Board and Chief Executive Officer

Dawn, I’ll let Andrew come back to the flight count. But yes, so you need to join our marketing team because you probably put everything that we’ve looked at on the table. But no, I’ll just tell you, yeah, it’s just too early to give away exactly what — for a lot of reasons. Competitively, we’re not ready to reveal exactly what that fare product looks like. Andrew is right, we’re not taking anything away. It’s going to be very attractive in terms of where it’s positioned. I think it will be what you would expect from Southwest Airlines in terms of consumer friendly, but we’re just not ready let you know, but it’s coming soon.

Andrew Watterson — Executive Vice President and Chief Commercial Officer

And just to double down, we will not take anything away from one to get away. So, there’ll be one get away of something above it, but we will not take anything away to want to get away. And for the flight counts, the March flight counts have already been prosecuted and so those who have already been handled, the April through May have not yet been published, so that’s what we’re — we mentioned in the press release and in our conversation that we’re in the process of doing that. So, we don’t have a flight count yet to give you on that. Those we expect to have prosecuted in a couple of weeks’ time, so it will be well in advance of travel and be less disruptive.

Robert E. Jordan — Executive Vice President and Incoming Chief Executive Officer

But the bookings that far are pretty much.

Andrew Watterson — Executive Vice President and Chief Commercial Officer

Yes, bookings during COVID generally skew closer in. And so what we have — that far the book is modest. So, it will be — some customers are impacted, but it will be a modest number because we’re doing it well in advance.

Dawn Gilbertson — USA Today — Analyst

If I can ask one very quick follow-up on the new fare category. What are you going for there? And I know it will vary by route, etc., etc. But obviously, this is a revenue initiative you’ve been talking about for a few years. What are you going for in terms of the fare differential — average fare differential between want to get away and whatever this new product is called? Thank you. And again, best to you, Gary.

Andrew Watterson — Executive Vice President and Chief Commercial Officer

What we’ve done over the pandemic, if you look at our website, you’ll see more modest step-ups between want to get away at any time and Business Select. And we think that has had a laudatory effect on our revenues and our customers are giving us good feedback. And so we like more modest step-ups compared to what was perhaps there a number of years ago. So having a fourth one that comes in there, we would desire to have the end, four products with modest step-ups in between with features that customers are willing to pay that modest step-up for. So it’s designed to be pro consumer and get someone who can — willing to give us additional money for additional features.

Operator

Thank you. And the next question will come from David Slotnick from TPG.

David Slotnick — TPG — Analyst

Hello. Good afternoon. Thanks for the question and congratulations again, Gary. I wanted to know if there is any update on when you’re planning to bring back full onboard service including alcohol. Thanks very much.

Gary C. Kelly — Chairman of the Board and Chief Executive Officer

So, we had planned to bring that back around the middle of February and we ended up because of the omicron virus. And just making sure that we had enough separation in the cabin for one, we delayed that. And then — so we’re looking at that here sometime in late in the first quarter, maybe early in the second quarter.

David Slotnick — TPG — Analyst

Okay. Thank you.

Operator

And the next question will come from Mary Schlangenstein from Bloomberg News.

Mary Schlangenstein — Bloomberg News — Analyst

Hey. Thank you. I wanted to ask two quick questions. The first is you’ve said that over the past year that you hope to add a total of 25,000 workers over three years. I wanted to see if you still think that’s a realistic number, if that’s one you will have to increase. And the second question is for Gary. Gary, is there something that you were unable to accomplish in your years as CEO that you would like to see Bob take on and accomplish?

Robert E. Jordan — Executive Vice President and Incoming Chief Executive Officer

Well, let me take the — just take the hiring. And again, sometimes you have to separate gross hiring and net because we always have attrition. But the 8,000 — as you think about our growth going forward, the 8,000 per year that we’re talking about here for ’22, I can see that persisting. We’ve got a lot of air into the future — in future years.

We’ve got a lot of aircraft coming this year, we’ve got 114 in our plan. We’ve got a lot of work to do to restore our network back to what it was in 2019. I think, Andrew, we’re roughly 75% restored at this point is my memory. There’s a lot of work to do to add back depth after we open the 18 cities. Beyond that, we have — I mentioned this in my remarks, we’ve got a lot of growth opportunities.

We’re picking up substantial gates in Denver and Phoenix and Baltimore and Nashville and others. And so all of that will take aircraft and all of that will take employees. So, is it exactly 25,000 over three years? I can’t tell you that, but it — you sort of take the 8,000 in 2022 and extrapolate that and it’s a significant number.

Gary C. Kelly — Chairman of the Board and Chief Executive Officer

And Mary, I hadn’t really thought about the way you asked the question, but it is a wonderful question. I think the — as we think about Southwest Airlines and year ’51, it is so much stronger and better prepared at any point in time in our history. And I think back 18 years ago, it — we had a lot of challenges. It was post 9/11, and the world was just different. There was a shift from — away from short-haul travel to longer-haul travel. We weren’t necessarily well prepared for that, and a lot of things needed to be retooled and still retained the essence of Southwest Airlines, which I feel like we’ve been able to do.

The speed of change in today’s world is just faster than it was 20 years ago. And so, I would wish for Bob that we have a better technology platform in place compared to 18 years ago that would enable a faster and more tactical like decisions. For us, anything that we wanted to do that was different in the 2000s meant years and millions in terms of construction. So it became a really significant strategic choice about which road you took when you came to the fork.

So, I think we have a much more settled and stable strategic outlook today, which I know that both of us — Bob is impatient and I think that, that’s a good and a bad quality for a CEO. But certainly, he’s urgent and has been a huge contributor, of course, to getting us to this point and laying out the direction that we’re headed. So it’s not like these are new ideas for Bob. He’s been working on this for a long time like I have.

I think the one thing that I’m grateful for looking back is that the things that we decided to do, we had a very supportive Board, we had willing and eager employees to embrace the change and we were able to fulfill the visions that we had. And that’s pretty rare. A lot of things you try, they don’t work or for whatever reason, they get derailed. And for us, we’re pretty much able to do just about everything we wanted to do. Just a couple of things that we engage that we set aside, code sharing is an example that eventually we’ll come back to, but you look at the things that were accomplished and it’s a pretty mighty list there. So he’ll, he’s got just as ambitious a list going forward.

Mike’s, he’s detailed with a few words. But there’s a lot of depth to what Mike’s strategy is for us and it’s just critical to our future. So, hats off to the technology and the business leaders who have gotten us to this point. We’re far better place today than we were then. And I think we’re — as I said, I think we’re extremely well positioned, certainly for the next five years and beyond. I’m very excited. I’m very enthused and I know Bob is too.

Mary Schlangenstein — Bloomberg News — Analyst

Thanks very much. Gary. Good luck going forward.

Operator

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Ms. Rutherford for any closing remarks.

Linda Rutherford — Executive Vice President People and Communications and Chief Communications Officer

Chad, thank you. And I just wanted to add, Gary, you know that you had many hats to wear in the roles in the last 18 years and on behalf of the communications team just really wanted to thank you for being our chief spokesperson. You’ve made our jobs easy and we appreciate and love you. And with that, if you all have any further follow-up for us, you can reach the communications team at 214-792-4847 or via the media website at www.swamedia.com. Thank you.

Operator

[Operator Closing Remarks]