Southwest Airlines is ‘in a hole’ following holiday travel chaos, strategist says

Boyd Group International President Mike Boyd joins Yahoo Finance Live to discuss airline earnings, travel demand, and the outlook for Southwest Airlines moving forward.

Video transcript

RACHELLE AKUFFO: All right, well, we're looking to the skies now as several major airlines report their quarterly performance with Southwest experiencing the most turbulence after its holiday travel debacle serves as a pain point for the US airline. Well, here to discuss is Mike Boyd, president of Boyd Group International. I mean, we were looking at an $800 million pre-tax hit, which really affected earnings. They had an earnings miss because of that. Still, though, a revenue beat. How would you characterize where Southwest is, though, because all that focus really on that loss?

MIKE BOYD: This is the most difficult time they've ever had. People have always relied on Southwest for three things-- low fares, lack of fees, and enormous public support. The low fares aren't there anymore. They price reasonably. Other airlines have done away with fees, a lot of fees. And now, after what happened over Christmas, you had millions of people who were really badly, badly hurt. So they can't rely now on the fact that everyone loves us. They've got to pick up from bootstraps and try to rebuild their airline as a going concern for the consumer.

RACHELLE AKUFFO: And Southwest really does have some of the most loyal fans. I think you compared them to the Grateful Dead groupies, but obviously, a bad experience can change a lot of that. And we did see president and CEO Bob Jordan recognizing how much they'd let their customers down. And they talked about these cancelations, though, and slower bookings continuing in January and February.

They even said in their SEC filing, based on current revenue and cost trends, we currently expect a first quarter 2023 net loss. However, we are encouraged by the current booking trends in March of 2023. Our 2023 plan continues to support solid profits with year over year margin expansion for the full year 2023. Would you be as optimistic? Do you think those ripple effects are going to have perhaps gone away by then?

MIKE BOYD: I don't know. I really don't. I mean, I love Southwest, Bob Jordan. I think he's doing as good a job as anybody could do. But keep in mind you had millions of people, millions of families, who had their holiday destroyed right now today even with the refunds. Having run a refund department at American Airlines, you can't deal with things normally here. When someone says they lost their deposit on the hotel, Southwest has to make that good. This is not a normal situation where, otherwise, they're not going to have anywhere near the loyal support they've had before December.

RACHELLE AKUFFO: And we're certainly seeing the stock price punished for that. I mean, he did apologize, again, in that SEC filing, and he also said that they do plan to investigate what happened and really invest in technology as well. What is it going to take, then, for Southwest to really regain the competitive edge, being that now it is perhaps at a more level playing field with some of these bigger airlines?

MIKE BOYD: Well, right now, I mean, the warning is there. They've got to fix the one system that caused all this. It's one system at one airline that caused this disaster. It is being addressed. But again, you have people out there that are saying that I didn't see grandma for the last time. I didn't have a good Hanukkah. I did not have a good Christmas. And it's all Southwest's fault. And when I asked for a refund, they only gave my ticket back. Southwest has a lot of work to do to get that back again because they're in a hole right now.

RACHELLE AKUFFO: And meanwhile, you have American Airlines really touting how well they fared operationally over the holiday season-- strong demand picture, earnings beat, record Q4 and full year as well. How does American Airlines compare? Because we also saw JetBlue with record revenue as well. But it does seem to be a tale of margins.

MIKE BOYD: Well, one thing, too. Look, flexibility is going to be everything in the next three years, flexibility meaning what you can fly, how you can fly, where you can fly. Southwest Airlines has two different configurations-- 137 seats, 175. And anything above that and below that, they really can't access. So they're going to be somewhat in a corner fleet wise, and that's going to be a challenge as well because in the next five years, what you can do is look at how many markets you can operate and have multi-mission airplanes. This is something people haven't noticed, but Southwest Airlines may have a deficit there.

RACHELLE AKUFFO: And what about JetBlue? Because I mean, they saw Q4 record revenue as well. But they definitely weren't as optimistic about what their first quarter of 2023 was going to look like.

MIKE BOYD: They need to be optimistic, but guess what? Their purchase of Spirit was not a merger. They bought assets. They're the one airline today, if that purchase goes through, they're going to have airplanes, new airplanes, and they're going to have pilots. Other airlines are going to look for others because they bought the assets, really, of Spirit. And they're going to be the best postured airline over the next three to four years to grow. And I'm looking forward to seeing how well they grow because it's going to be huge.

RACHELLE AKUFFO: And how do you see that perhaps market share changing as we look at this industry, and we look at some of the changes and investments these major airlines are making?

MIKE BOYD: Well, the big issue we have to realize is the new world. I mean, four years ago, you had 8 million people back and forth between China and the US. That's down to 100,000 or 200,000. Now it's going to stay there. So you have to be able to move very flexibly. And if you move flexibly, that means you have to have a fleet to do that.

So I would say you're looking at airlines like American, Delta, United. These are all very well managed airlines, and same thing with Alaska. So I'm thinking the shares are going to stay the same because airlines now are only going to fly what they want to fly. They're not chasing economics anymore. They're making the economics.

RACHELLE AKUFFO: And they've clearly shown that the demand is there. We're clearly seeing the ticket prices not going down and people are still willing to pay the high prices. A big thank you there to Mike Boyd, president of Boyd Group International. Thank you for joining me this morning.