Southwest Air’s hiring struggles are damping efforts to cut costs

Southwest Airlines Co.’s ongoing struggles to attract and retain workers are keeping costs elevated and threatening to hold up a series of initiatives to boost earnings in the coming years.

“The only way to get from here to there is by hiring, and the hiring environment is the worst we’ve ever seen,” Chief Executive Officer Gary Kelly said Wednesday during an investor day presentation. “We can’t fulfill our aggressive plans without getting the incremental hires that we need.”

The carrier has filled about 80% of the 5,000 new positions it planned for this year, but unexpected attrition is blunting the benefit, said Bob Jordan, who will replace Kelly as CEO on Feb. 1. Wage rate inflation is pushing costs higher, the airline said. Below-normal productivity and flying capacity, both linked to lack of sufficient workers, will account for as much as 6 points of an up to 14% increase in unit costs in the first quarter of 2022 compared with 2019.

Airlines are struggling to fill entry-level jobs, competing with companies like CVS Health Corp. that have increased pay and offered incentives to win over prospective hires.

Salary, wages and benefits is the “most significant category” of Southwest’s cost structure, and could be pushed higher as it competes to attract workers, Chief Financial Officer Tammy Romo said. The carrier raised its starting wage to $15 an hour on Aug. 1.

“We’re facing a fair amount of inflation, but the only way to get to the kind of opportunities we have, which is superior to sitting still, is to hire people and fight our way through this cost challenge,” Kelly said.

The carrier has already deployed new hiring tactics, including on-the-spot interviews and instant job offers, to ramp up hiring. It wants to add another 8,000 workers in 2023 under a plan to add 25,000 over three years.