2022-01-27 06:52:54 LUV Southwest
01/27/22 01/2706:52 01/27/2206:52 | Southwest says reducing Q1 capacityThe company said, "Based on current cost trends and recently reduced capacity plans, first quarter 2022 operating expenses, excluding fuel and oil expense, special items, and profitsharing, are expected to increase in the range of 20 percent to 24 percent on a unit basis5 as compared with first quarter 2019, an increase from the Company's previous guidance of 10 percent to 14 percent. The Company continues to experience cost pressure due to inflation in labor rates and airport costs, as well as unit cost headwinds from operating at suboptimal productivity levels. Additionally, the Company has temporarily extended incentive pay to its Operations Employees through early February 2022, which is expected to result in an additional $150 million of salaries, wages, and benefits expense in first quarter 2022. Furthermore, the Company is reducing its first quarter 2022 capacity to provide additional stability during this challenging environment. Compared with the Company's previous first quarter 2022 unit cost guidance, excluding fuel and oil expense, special items, and profitsharing, approximately half of the estimated unit cost increase is attributable to the temporary incentive pay offered to Operations Employees, and the remaining half is driven by reduced capacity. The Company now expects its first quarter and full year 2022 interest expense to be $90 million and $360 million, respectively, a decrease from its previous expectation of $110 million and $440 million, respectively, due to the Company's adoption of a new accounting standard related to convertible debt. Effective January 1, 2022, the Company adopted Accounting Standards Update (ASU) No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. As a result of this new standard, the Company will no longer record amortization of the debt discount associated with its convertible notes to interest expense." |
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