Southwest Airlines Co
NYSE:LUV
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
23.7
34.83
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Southwest Airlines Co
You don't have any saved screeners yet
Good morning and welcome to the Southwest Airlines Third Quarter 2021 conference call. My name is Rocco (ph) 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.
Thank you, Rocco. And thank you all for joining us today. And just a moment, we will share some brief remarks and then open it up for Q and A. And on our call today, we have our Chairman of the Board and CEO, Gary Kelly; Executive Vice the 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 here.
So first we will make forward-looking statements which are based on our current expectations of future performance and our actual results could differ substantially from those expectations. And second, we had a few special items that are first-quarter results, which we excluded from our trends for non-GAAP purposes and we will reference our non-GAAP results in our remarks today.
So please see our press release from this morning and our IR website for more information on both topics. And just a reminder that we are hosting our Investor Day in New York on December the 8th so stays tuned for more details on that, and we will go ahead and get started. So, Gary, over to you.
Ryan. Thank you, very much and good morning, everybody. Welcome to our Third Quarter 2021 Earnings Call. After five quarters of pandemic weakness, we saw a dramatic recovery in terms of passengers, fares, and revenues. And obviously, that was very encouraging. It would've been even better, but for the delta variant surge, which began to affect us in early August, of course, the balance and revenues came with a lot of bumps in the operation though, as our historic staffing models left us short and caused us to miss our reliability plan for the quarter. And that required immediate attention and action for future schedules, which we have taken. So, I would be the first to admit that things are messy.
It is also very encouraging to see the earnings potential, and especially considering the business travel as far from recovered to 2019 levels and our capacity is not fully restored with 24 airplanes are still sitting on the ground. It also illustrates that this virus and its effect on our business can be unpredictable and volatile. And the burden to manage through all of this falls to our people. And we've gone from not enough to do to too much to do in a very short period of time. And as a perspective, of course, I think we'd all take the latter scenario any day.
It has been a huge challenge for our people, so I want to thank them. They are warriors. They have performed exceptionally well and especially considering the challenging circumstances, I am very proud of them and they remain and always will be my top priority. And with that, I'd like to turn the call over to our incoming CEO, Mr. Bob Jordan, who will give us a quick overview.
Thank you, Gary, and hello everybody. It's good to be with you again. I'll touch on a few items before I turn it over to Tammy. The transition continues to go really well. As part of the leadership changes announced last month, our full senior team now reports to me and they are the finest leaders in the industry and it's an honor to work with them. We are working together on long-term priorities and specific plans for '22 and we will share those in December. But one of my highest priorities is being with our people and it's energizing to see their heart, and their dedication, and witness the incredible job that they do every single day despite the challenging operating environment.
They are my heroes and it's an honor to stand beside them as we emerge from the pandemic and take advantage of our opportunities. As Gary said, we had terrific momentum at the beginning of the third quarter, especially leisure demand with traffic actually above 2019 levels. We were on a good trend on the corporate side as well as it was just off of a lower bottom. The resurging COVID cases cost the quarter about 300 million and that aside, the quarter would have been solidly profitable. As cases have come down on subsided booking trends have recovered nicely on both the leisure and the business front, and booking trends for the holidays are in line with 2019.
As you know from the release, the key headwind for the fourth quarter, aside from just inefficiencies, as we continue to ramp up as a significant increase in jet fuel prices. I do want to touch in -- touch on the issues we experienced beginning October the 8th. Our challenges started with a widespread ATC ground stop and ground delay program that effectively shut down our Florida operation from that afternoon through the end of the day. Mike is going to talk more about this, but that caused a significant number of crews and aircraft to be out a position, and then that took several days to recover. As a result, we inconvenienced thousands of customers, and we further challenged our stellar employees.
And I just want to apologize to both our customers and our employees. We just did not live up to your expectations. Before this, we were actually seeing very positive trends in our operational performance. And the key to continue improvement is getting staffed and continuing to invest in our operation, and we are absolutely laser-focused on both of those. Looking forward, our media goals are really basic: 1. Bulk up our staffing. We made tremendous progress that remains short of what is needed, especially when we dip in the staffing reserves. And therefore, we've continued to modestly tram our fourth first quarter schedules, 2. Get back to our historic operational reliability and efficiency.
The ramp up of the business and the fits and starts caused by the COVID ways have made both of those very tough, as has the lack of network there. 3. Restore our customer service advantage, which starts with our people and the unrivaled hospitality that they deliver. And again, that is tough in the current operating environment. And fourth, continued that focus on our people and our culture. Our people are our advantage and the last 20 months has been challenging them collectively and individually. Our culture has sustained us through the pandemic and it will power our advantage as we emerge from the pandemic.
And while we have short-term issues to manage, I will just tell you, I'm very positive about our long-term opportunities. I'd also like to talk briefly and highlight our sustainability plans. Earlier this week, we announced a set of specific 10-year plans in support of our overall goal of becoming carbon neutral by 2050. It's important to our people, our customers, and above all, our planet that we're good stewards. As we grow over the next decade, that growth is planned with no incremental carbon emissions as compared to 2019. And carbon emissions per available seat mile falling by at least 20% by 2030 as compared to 2019.
This progress occurs through a number of initiatives, but namely a commitment to the more fuel-efficient Boeing 737 MAX 7 and 737 MAX 8, and accelerated retirements of our older, less fuel-efficient aircraft; a commitment to 10% sustainable aviation fuel by 2030, and in the near-term, a carbon offset program that partners with our customers who are passionate about this and our offset program will be the only one that provides both loyalty points and a dollar-for-dollar match. Above all, I'm just really proud of the work team that has done the work to pull this plan together so quickly.
And I'm especially proud that our plan and our commitments are specific and they're time bound. to wrap up while we've made considerable progress from a year ago and are pleased with the recent improvement in travel demand trends. It is clear that 2022 will be another transition year in the pandemic recovery. The restoration of the network is a top priority in '22 and '23, but it will take time and it will be largely dependent on the pace of recovery of business travel and our ability to staff.
Even with the anticipated cost headwinds in '22 related to significant inflation and productivity shortfalls, our primary goals next year are to deliver increased operational reliability, generate solid profits and margins, and restore and grow the route network while reducing our carbon emissions intensity. And I look forward to sharing a lot more about all this and our 22 plans at our Investor Day on December the eight. And with that, I will turn it over to Tammy,
Thank you, Bob, and hello everyone. I'll provide a quick overview of our overall financial results and some color on our outlook. On a GAAP basis, we generated a 446 million profit in third quarter or $0.73 per diluted share, and this was driven by the 763 million of PSP proceeds that offset a sizable portion of salary, wages, and benefits expenses. Excluding this temporary PSP benefit and other smaller special items, our net loss was 135 million or a $0.23 loss per diluted share. Our third quarter results are clearly not where we need them to be, and we are disappointed by this step-back in revenue trends as a result of the Delta variant.
Even so, we are pleased our bottom-line came in above expectations, and improved sequentially from second quarter. And we currently have 16.2 billion of cash in short-term investments on our balance sheet. This as well in excess of our outstanding debt, and it is relatively in line with where we were at the time of July earnings before the impact of the Delta variant began. Overall, travel demand has proven to be more resilient today and the overall impact of this variant has been much less than what we previously experienced since the pandemic began. Before getting into the specifics, I want to offer my thanks and appreciation to our employees.
They're [Indiscernible] spirits have been in full effect since the pandemic began and I commend them for continuing to work together to combat this pandemic. I am also pleased for them that we were able to accrue additional profit sharing in third quarter as a result of our GAAP profits. Third quarter, available seat miles and non-fuel unit costs were within our guidance ranges, and I am pleased with our overall cost control throughout the quarter. Operating revenues were better than guidance, and that was primarily due to improving revenue and booking trends in the second half of September soon after our last investor update as COVID-19 cases began to decline.
And fuel cost per gallon was slightly better than guidance. We provided a lot of color for you in our press release regarding revenue and cost trends, as well as fleet plans, so I will just add a few additional thoughts. We had four points of notable cost pressure in third quarter. And these four points were primarily due to premium pay, as well as other ramp up costs. In terms of premium pay going forward, we currently anticipate that we will need less in fourth quarter as we have reduced our flight scheduled to provide more staffing cushion, reduction in premium pay provides a roughly two-points unit cost tailwind from third to fourth quarter.
Our 2 largest ongoing inflationary cost categories are salary, wages and benefits, and airport costs. These 2 categories alone are driving 3 points to 4 points of unit cost inflation in fourth quarter on a year-over-2-year basis. First on salary, wages, and benefits, which represents roughly 3 points of the unit cost pressure, we have higher-than-normal wage rate inflation, including the recent increase in the minimum hourly wage. It is the tight labor market, which is also putting pressure on wages. In addition, we should have nearly everyone back from extended leave by year-end, and we are hiring across all work groups to support the current operation.
Second, on airport costs, by year-end we will have 18 new airports in our network, so our overall properties footprint has increased and we are experiencing rate pressure across the board. The rate increases we are anticipating continue to be much higher than inflation, especially in this environment. Our fourth-quarter trips are expected to be down 13% compared with fourth quarter 2019, which underutilizes our space and exacerbates the inflation we're currently seeing. I expect better operating leverage from our airport facilities in the future as we are able to add depth and frequency back to our network over the next few years.
Also, in fourth quarter, we have 4 to 5 points of notable cost pressure above and beyond general inflation. These cost pressures are attributable to hiring, our vaccination incentive pay program, and lower productivity than historical norm. We expect cost pressures from lower productivity to persist in the near-term, and subside as we are able to restore the majority of the network. Even with these inflationary pressures, our fourth quarter bottom-line outlook is trending better than third quarter, except for higher fuel prices.
Fuel prices, even after factoring in higher hedging gains, are $0.26 higher in fourth quarter than in third quarter, which is roughly 120 million more in fuel expense sequentially. That said, our strong fuel hedge is currently expected to provide $0.18 of hedging gains here in fourth quarter and underlying revenue trends have ticked up, which is encouraging even though we are expecting a loss for fourth quarter in this high fuel price environment. Our flight schedules are currently published through April 24. We have reduced our fourth quarter capacity to down 8% on a year-over-year basis. And we currently expect our first quarter 2022 capacity to be down 6% compared with first quarter 2019.
We currently have 72 firm orders and 42 options next year, and we will continue to evaluate option exercises as decision points arise. Regardless of our capacity plans next year, we continue to believe that taking the additional 2022 options will yield a positive net present value on aircraft replacement if we don't deploy them in the network. As far as other commentary on 2022, we will share more about our fleet and capacity plans and our financial outlook at Investor Day and I'm looking forward to seeing you all there. So, with that, I will turn it over to Andrew.
Thank you, Tammy. I'll provide some additional color on our revenue trends and outlook and point you to our earnings release for more detail. To some of our third quarter revenue performance, it was disappointing to take a step back on the revenue recovery trends we experienced from March through July. The impact of the Delta variant began impacting revenues around the beginning of August, and we saw slowing and inconsistent pass-through traffic and bookings along with an increase in trip cancellations through about mid-September. In terms of overall revenue loss, September bore the brunt of the impact and we saw that across all geographies in for both leisure and business travel.
As with prior waves, when we have a step-down in demand, especially with the slide we saw in business demand September, yields are tough to manage. However, we had better success in terms of maintained load factors in the low 80% range for the third quarter. The silver lining is that the overall impact for the Delta variant estimated to be 300 million in Q3, another a 100 million in Q4, was less severe than what we experienced from prior COVID waves. As you may recall, operating revenue stalled down in the mid negative 60% range from September through February.
So, travel demand is much more resilient today than this time last year. While there's a lingering impact to fourth quarter operating revenues from the Delta variant, revenue trends have improved substantially since mid-September. Trip cancellations have decreased and stabilized, and we've seen an increase in bookings across all geographies for both leisure and business. Operating revenues are currently expected to improve sequentially throughout the fourth quarter. The booking curve has normalized, and bookings thus far, for the holidays in November, December are healthy and supported by improving leisure demand. In fact, our overall booking curve is currently trending in line with 2019 levels for the holidays, which is encouraging.
In terms of business travel trends, our managed business revenues were down the lower 60% range in both July and August year-over-2-year, but took a step back in September to down 73%. Over this trend has reversed as we are experiencing steady improvements in business bookings thus far in October. Based on current trends, we expect managed business revenues to continue improving modestly. in November and December and end at down roughly 60% by year-end. This estimate is less optimistic than what we previously shared prior to the impact from the Delta variant, as many corporations pushed back our campus openings until after the New Year.
But we remain cautiously optimistic about overall business travel improvement throughout year-end and we believe there is some pent-up business demand, and there's a chance that we see a pick up at a faster climb as we get into early 2022, We are now live on all three of our plan GDS platforms; Amadeus, Travelport, and Sabre. We have now removed the friction from businesses working with Southwest, and we have a full array of distribution channels that they can choose from. Early indications from our GDS launch are we are gaining incremental volumes through the GDS channel and seeing a great response for Southwest fares through the GDS.
As expected, we're also seeing some channel shift from our direct connect channels to GDS, which is perfectly okay and sets us up for broader fuel to corporations to the channel of their choice. Turning to our new markets, they continue look well and overall performed in line with expectations in third quarter. Hawaii markets were impacted more severely as travel warnings were issued against travel to the islands.
However, all of these growth markets have shown improvement recently in line with the broad-based improvement we're seeing across the rest of the network. And lastly, our Rapid Rewards program continued to show progress in third quarter with other revenues up 10% on a year-to-year basis. We remain convinced about the growth opportunities of Rapid Rewards and our program portfolio, which we recently expanded in terms of our credit card offerings. And with that, I'll turn it over to Mike.
Thanks, Andrew, and hello everyone on the call. We've had a challenging quarter operationally and it's clear that our industry ecosystem is still fragile. We're facing headwinds with hotel services, including food and transportation, airport services like wheelchairs and concessions, mass requirements for customers and our people, and we still have a very challenging supply chain and hiring environment; and all of those things are impacting you travel experience for our customers and for our employees. Our third quarter operational results reflect that environment and we have a number of employees making significant sacrifices to help us navigate through it, and I am extremely grateful to them for their support to engage in a very difficult arena. And they're just special warriors.
We finished the quarter with a 71.7% on-time performance, and while that was 6th in the industry, those delays were generally less than 45 minutes, and our on-time performance at 60 minutes was 90.4%, which was 4th in the industry. We did have our best third quarter bank handling performance in our history with, of course, the exception of last year when our bag volumes were slightly less than half of this year. And we continue to lead the industry with the lowest customer complaint ratio to the DOT.
So, while I'm not satisfied with our overall results, and we can, and we will do better, our people worked very, very hard to take care of our customers. As we move forward, we are focused on a couple of targeted actions. First, we know that our on-time performance has been impacted all summer by a combination of high load factors, and especially going into an out of our largest cities and a reduction in frequencies from our typical network. In fact, our largest cities experience full airplanes coming in and out nearly every day, and they had much more extensive connecting activities, including bag volumes than what we had seen pre - COVID.
And those activities took more time to complete, then we had scheduled for our turns. And given the heavy load factors, we tended to hold the flights for connections, given the reduction in frequencies and our inability to reaccommodate the customers. And that of course, put pressure on our on-time performance. And that averaged roughly 66% from July through mid-August. So as the customer volumes declined mid-August through September, and those activities lessened, our on-time performance improved to 80%. And that was a welcome improvement, but again, it was below our historical performance in that period.
So, in the near-term, we have focused hiring efforts to increase staffing at the airports to give us more resources to handle those activities when our load factors increase over the holiday periods, and we're also better using our staffing tools to more accurately match our scheduled shift with those activities. So, I expect both those additional resources and more focused stacking execution will boost our on-time performance going forward. And then for future schedules, we are looking at scheduling opportunities to move ground times around the places where it's most needed to keep our flatlines on time as long as this connection activity is expected.
In a second -- in a separate but still related issue from on-time performance is balancing our schedule with our crew resources. All of our employees should expect to be able to bid their shifts, to show up to work, and it'd be the same as what they did, and then they get to go home as planned. And I've mentioned before that those staffing plans were based on various models that have assumptions in them for things like vacation and sick leave, open time, or shift pick-up rates, and the time that takes to fill open positions. And while we had adjusted those assumptions going into the summer to provide more staffing cushion, they just weren't enough to match the reality of the environment that we were operating through.
And that was particularly impactful to our flight crews. Our sick trends were much higher than expected, and our open time pick up rates were also impacted. And those were more pronounced on weekends, and we were routinely exhausting our reserves to cover those impacted slides. And that's what causes accrued reroute and the unplanned overtime and the unscheduled overnight, and all of that impacts our people. So, it's a spiral that we just have to break. And to do that, we've adjusted our fourth quarter flight schedules downward as previously announced, and we have a new hire flight attendants along with pilots returning from extended leaves that are coming back online in the fourth quarter.
And those actions will boost our crew reserves to 20% for our pilots and around 26% for our flight attendants. We'll also expect our SEC trends, which include COVID impacts, to begin to decline as this Delta variant begins to wane. In summary, we continue to add staffing and we've made schedule adjustments to both improve our on-time performance and add more staffing cushion to navigate through our current environment. As our environment and our staffing and scheduling balance begin to stabilize, we'll be in a good position to begin restoring our network frequencies during 2022.
In closing, we've had our share of operational headwinds this year, I know the environment is full of stressors and distractions, and I just want to express my continued thanks to all of those employees that have made significant sacrifices to take care of our customers and to support their cohorts. I know they have tremendous pride in our Company and the Company is tremendously proud of them. And with that, Ryan, I'll turn it back to you.
Thank you, Mike. I believe we have analysts queued up. And just a reminder to please keep your questions to 1 and a follow-up if needed. So, Rocco, please go ahead and begin our analyst Q&A.
Yes, sir. We will now begin the question-and-answer session. [Operator Instructions]. Today's first question comes from Jamie Baker, JPMorgan. Please go ahead.
Good afternoon, everybody. Gary, notwithstanding the PSP -related prohibition, could you opine on the milestones you hope to achieve before dividends and buybacks reemerge as part of the Southwest story?
Well, I think, Jamie, it's pretty much a stock answer. Obviously the -- we'll want to make sure that the earnings support that. We'll want to make sure that the balance sheet supports that. And then we'll want to balance that against our capital plans. So, I think the litmus test that we've used for decades, we would continue to use. In the old days, when we were so high growth, we had a fairly modest dividend and used share repurchases sparingly because we were investing in the Company and in growth. I think everybody in this room is very hopeful that that's what we've got in front of us.
I think we're -- I pushed a little too hard there in the third quarter with capacity, but the encouraging thing is demand is there. We've got a line of sight to airplanes, thanks to what I mentioned in the second quarter, we've got airport capacity, and right now our constraint is just making sure that we have the people resources to balance all that. So that's going to be a priority, repairing the balance sheet at least to a degree, Tammy is nodding her head here, is certainly an objective for us, and you got two levers, one is paying down debt, the other one is generating earnings, so both of those work in tandem.
But it will -- I think our long history of returning or having returns to shareholders, it has not changed. It'll just have to obviously feather in with this very different environment than we're finding ourselves in and an interesting growth opportunity over the next 5 years. So, Bob, I don't know if you're -- or Tammy, if there's anything you'd like to add?
No. I think you've covered it all, Gary.
Yeah. Okay. That's very helpful. And then a follow-up on that and this one is going to show my age and hopefully not cause anybody there to laugh. But I'm thinking back to the infamous ten-minute turn. What prevents that today? I mean, obviously aircraft sizes, initiative, demographics have changed. I'm guessing people check more bags.
I don't know if there's anything in the labor contract that prohibits flight attendant contribution, that sort of thing, a longer stage means more fuel to pump. I'm just wondering what else has happened that prevents you from having a 10-minute turn. And obviously, I'm not suggesting you ever get back there, but I've got to imagine you can do better than what you currently are. So, what are some of the other constraints that I haven't thought through?
Well, I'll give you a historic answer and the Mike is going to make you and I both look old here. But Mike, his team and technology just rolled out some technology this week, in fact, that will help address what you're describing. But the 10-minute turn -- Jamie, my first flight on Southwest was in 1972 and there were 2 other passengers on the flight. It does not take long to turn an airplane in 10 minutes when there's 3 customers. I asked Lemar Muse when I first became CEO about who was the genius that designed the open seating concept.
And he very colorfully told me that you don't need to assign seats when the airplanes are empty. So, the passengers are the gating factor with the term. It's rarely the bags. With a more connecting bags, you have obviously that calculus can change, but I will tell you one other funny old story, these all predate me, although I was a customer in the 1970s and experienced this, we actually would push the airplane before everybody was in their seats, much less buckled in with the seat belt. So, all kind of quaint stories now. But I think you're probably more interested in what can -- we can do realistically. So, Mike, you want to talk about those targets you have?
Yeah, so, yeah all of those things are true that Gary was mentioning, but I think we do focus on the turn and we break it down into different components. And you start just with the different components, we all flow in, and then in clean, and in the loading back up, and there are several things that make the turn longer today than they were back in the days when -- you remember the 10-minute turn. And so, one of the big items right now is the ATA and wheelchairs and making sure that we have wheelchair accommodations for people.
That probably adds 3 or 4 or 5 minutes just trying to get people loaded on the airplane, and a lot of times they are magically healed getting on from the slide with [Indiscernible], then getting off. But when they do need them getting off, it actually adds several minutes again. So, I think just the wheelchair process is probably adding five to ten minutes of that in turn. The second thing that you have is just more people are bringing bags on the airplane. And we've got the skies -- the new overhead bins on the new airplanes, trying to get all those things stored. That takes a little bit longer than normal. And those are really the 2 primary things. The third thing is back when I first started that Southwest Airlines, our ops agents for rent a door of the airplane.
And so, any coordination they had to do with the cockpit was right there at the door of the airplane. Today, depending on -- you've probably walked down some of the jet bridges, they're long walks and our ops agents sometime have to make that trip 2 or 3 times. And that's one of the things, what Gary was talking about. We just rolled out some technology that will allow us to handle mobile platform and get our ops agents back closer to the door of the airplane. So that will help also.
Okay, very interesting and enlightening. Thank you for letting me ask that question. Take everybody.
And our next question today comes from Savi Syth with Raymond James. Please go ahead.
Hey, good afternoon, everyone. I know in the past you've talked about just given the number of new airports you've added that you can increase your breadth, basically, and not you've depth, and that most of the capacity growth going forward will be to build back that depth. And I think Tammy in your comments about getting back to that, to bring back productivity. I was just curious in that at what level of capacity would you get back to a level where you can drive better productivity across the network and maybe better recoverability.
Andrew, I'll start off and then let you chime in any thoughts you have. So yes, just to just to give you an idea of at least how we've deployed our aircraft here currently. We've talked about we added the 18 new cities, and of course we've added Hawaii. So, when you look at all of those together, we have about 92 airplanes deployed in either new cities or in Hawaii service, which means that's 92 aircraft less that we have in our network, pre -pandemic if you will. And so, we need to go back and backfill that number of aircrafts, to at least get us back to kind of where we were pre -pandemic.
And then as we look ahead to 2022, we're making some adjustments to our capacity here in the near-term as we've taken you through, so will want to add a back capacity as quickly as we can, but obviously demand's going to be a pacing factor, and of course our staffing levels as we covered with you. So those are just a couple of high-level thoughts. But Andrew, anything -- any more details you'd like to add to that, or thoughts?
Yes. To build on that, if you look at the aircraft numbers that Tammy is talking about, that implies it's going to take us over a year to fully restore our network. This is a longer-term play. And we talk about restoration overall like that, but that's a subset of that, a very large subset which is the depth we talk about. And so, the depth markets are primarily business-oriented markets. So, we expect to, with the pace of business travel return, bring in those depth markets over our next year.
Those same depth markets are the ones that also facilitate recovery, the day-to-day recovery that Mike was talking about. And our March through summer schedules as we anticipate seeing a step change in that level of density and depth in our network. We won't be fully restored again for over a year. But the part which really appeals of business travelers and helps micro recovery, we expect to see substantial progress from March through the end of summer.
That's super helpful. Thank you. And if I might quickly to follow up on some of the GDS comments. I was just wondering if you could talk a little bit more about what you're seeing in terms of the channel shifts that you mentioned and how those lines up versus expectations?
So, we're seeing incremental benefit clearly from GDS. It happened just -- when we live with Sabre, a 1/3 of the 3 just before the Delta variant. So given the turmoil of the Delta variant, it's really hard to be conclusive with the trends. The enhance, clearly though, it is incremental, the shift we had planned for from our direct channels to these indirect channels, how to give you a little bit of context, some of our largest corporations actually use all 3. So, they're using Southwest swap is, they're using our direction ACT, and now they're using TDS. And they using it for different populations and travel purposes.
So, the amount that's going through each of those 3 channels, really depends on the population of who is traveling at that Company right now. So, it's hard to make definitive statements about what the overall shift will be, more kind of done and dusted here as business travel finishes out its ramp up, but right now we see it's clearly incremental and we certainly planned in our business in case for a substantial amount of shift.
Makes sense. All right, thank you.
Our next question today comes from Brandon Oglenski with Barclays, please go ahead.
Hey, good afternoon, everyone. And thanks for taking my questions so I don't know if this is for Bob or Tammy, but how do we think about ongoing costs here? And I guess in regards to recovering the network, getting back into some of those shorter-haul frequencies like you guys talked about. But just longer-term, I think Tammy, you were talking about projects back in 2018, 2019 on the technology side that you guys needed to invest in. So, are we back to an environment where maybe benchmarking to prior cost structures is not the right way to think about it, or can we get back to those unit costs?
I can start Bob, and then you can chime in with any thoughts you have. But yeah, just kind of picking up from where we are here in the third quarter, our CASM ex was up about 3.5%, and that was on a year-over-year 2 basis. And so clearly, we've got some ramp -up cost pressures here currently. And as I said earlier, and that was about 4 points, and that related to premium pay and ramp -up costs. So, if you adjust for that impact, our third quarter CASM ex would have been slightly below our third quarter 2019 on capacity, that's down about 2%.
So, we've taken some cost cutting measures here that we've implemented during the pandemic, and that's enabling the voluntary retirement program and our extended lead program. And while those had substantial savings this year, the benefit is certainly temporary as all those employees we'll be back here by year-end. And of course, as you know, we've shared that we're hiring a substantial number of employees, so we've got a goal to hire 5,000 new employees by year-end to replace many of those who left.
So, the point being is the cost reductions that we had during the pandemic, those will come back as capacity comes back. So that puts us at a much different point in the ramp up than most of our competitors, if you still have capacity down much more. We've talked about our 18 new cities and Hawaii investment. We've allocated capacity here, and that has come from pulling down our short and medium haul flying. So many of our costs here are back online and I just want to point out again, we're staffing back up. And our network is very different from what it was pre -pandemic. So that's kind of where we are today.
And then we've also experienced several years of wage rate inflation from where we were in 2019. And as I covered earlier, as we got inflation in airports and pretty much across the board. So, when you add to that, lower productivity we're experiencing from some of the behavior changes that we've talked about in this really tough operating environment. Point being, the environment is just different here. So, getting to your question, as we move forward, the main thing will want to focus on here is regaining our historical productivity edge.
And clearly the biggest thing is gain operating leverage through restoring the majority of our pre -pandemic network. I know that was kind of a long-winded answer there, but there just are a lot of moving parts here. So, we're going to be focused on improving our productivity as we move forward, but I think the biggest question mark I have right now is just what it's going to be the extent of the inflationary pressures that we're feeling.
Yeah, and I'll give you the 50,000-foot view, maybe the way I'm thinking about it is we've got -- nothing is normal right now. There are just all kinds of fits and starts in the business and different behaviors, and so you've got extra cost and inefficiency that comes through the network moving around. We've had schedules, we cut them back, you've had inefficiencies that have come through just hiring, we're staffing, it takes a while to get people through training, we're still behind. It takes a while for those folks to become productive, so you've got cost inefficiencies there.
We had changes in behavior, I think those are largely COVID -driven, so we have obviously direct COVID pulls were people they're literally pulled off camp, can't work because of a COVID contact. We have excess sick leave as compared to normal. We have more folks on leaves as compared to normal. That's likely due to -- connected to bringing folks back from those extended leaves earlier than they had planned.
So, there's all kinds of stuff that is in there. And it's hard to tease apart exactly what the value is of each. So, I'm with Tammy. Job 1 is to stabilize all of that and then work to get ourselves back to pre -pandemic levels of productivity and efficiency. And from then work on cost pass savage. Job 1 is to get back to the -- to wring all this out and back to the productivity that we had prior to COVID.
And if I could just pile one in, I would -- if you think about airplanes, airports, and people, I think we've got a line of sight on airplanes.
Yeah
And that's pretty much in our control. Airports, I think, are close to that. And I absolutely -- I agree with Bob and Tammy. The goal will be to get back to people productivity that we had pre -pandemic, and that we're just going to have to work our way through that. But that will absolutely be the goal.
I mean, is it incremental hiring that you guys need to get going forward to get back to that productivity levels?
I think it's yes and no. So right now, the way to think about it is it takes more people per departure than before. The analogy would be like the United States participation rate. Our participation rate actually producing flights is less today than historically, and Bob ticked through it, it's excess sick, more people on leave, etc. As we get the pandemic behind us, I for one think that that will revert back to the mean, and we'll trend and achieve prior productivity rates.
The plus on what's you're asking in terms of hiring is we've got 24 airplanes sitting on the ground doing nothing. We've got airplanes that we want to add to the fleet next year. So absolutely hiring will address that and that will be a productivity contributor on the airport and the airplane side.
Thank you.
And our next question today comes from Duane Pfennigwerth with Evercore ISI. Please go ahead.
Hey, thanks for the time. So, I'm curious if you could share kind of what you've learned from a network perspective that strain the operation. Every carrier has been contorting their network to this demand environment. I think you lengthen stage length. In past media you talked about how much of your capacity touches Florida. What are the lessons learned? And if we dig through your future plans, what are the types of markets you've moved away from in an effort to improve the operation?
I think the first thing is we moved in the summer, we curbed four schedules based on overseeing with staffing and Tom ended up -- Gary and Bob referenced. And we just took more people per trip, and so we made big lower trips from October through the end of the year. So just the level of capacity versus staffing was the initial issue. The second is the day-to-day recovery is more difficult when you have fewer options for free accommodation without reaccommodating the customer, the crew, or even the airplane to get it where it needs to be that night.
And so, bringing back that density, we've identified as the number one thing that will help our day-to-day operations recover more easily when there are things that are exogenous shocks from weather or something else that allows us to recover. And so, getting that back is going to be -- or what we're using our aircraft over at least the next year.
And is it kind of -- that our network that was pre -existing in 2019 will come to look a lot like what we have at the end of next summer, at the end of next year, that core part that operated very well and produced good results. We'll start to look a whole lot similar. It takes a while to get there, but that's where we'll be using the aircraft for versus say, growth in breadth options, which would be used during the pandemic.
And Duane -- and Andrew, you chimed in on this, but I don't think that it's so much a stage length long-haul or short-haul as it is more of a tilt towards leisure markets. So that lends itself to thinner frequencies, may be longer distances. Obviously, Hawaii has a huge impact on averages here, because we beefed up that service. But a lot of our traditional business markets were a higher-frequency short-haul, and we've sent those out.
So, I think it's more, Andrew, the leisure business that we've adjusted now, and we want to go back to restoring, which will be more short-haul, more business-oriented, which beefs up the backbone and helps with recoverability. So, I don't know if there is a learning that we've had. I think actually things are playing out the way we thought. But we're all anxious now that demand has recovered.
I mean, that's encouraging thing here because now we're in a position where we can sort of pursue our strategy. It's playing out like we hoped and we want to keep the new markets we added. We just want to get back to restoring the traditional Southwest networks, which we think is going to drive a really nice profit. They'll develop very rapidly.
That's correct. The restorations should be very low risk. And the leisure portion is absolutely correct. In fact, if you dig into the issue Mike talked about with connections, it wasn't so much the nominal connections of kind of customers, which are actually flat, slightly down. It's connecting bags, it cutting bags were up because we have more leisure customers. And leisure customers checked bags at a higher rate of business customers. And so, as we get back to a better business-leisure mix, we should see the proportion of bags and connecting bags coming down on the network, which will also be a tailwind operationally,
Edwin, I actually think the learning and wasn't on the network side. I mean, our network folks and our operational analytics folks are on top of all this stuff. They understand what we're doing. And then obviously, they understand what we have done to ourselves. If we back off frequencies and depth, obviously it's going to be tougher to recover our customers and move our crews around. So, we knew all that. I think that -- I think the two learnings are -- again, we've talked about this a lot. We depended on some hiring to get staff to support that network and it was just tough to get there.
So, by the time we were ready to fly, for example, the summer, we just weren't staffed to the point that we thought we would be. And the second learning really was how important the margin is, whether it's cruise or round operations, but I think especially cruise. And as we had lower margin things like reserves and all that, the operation is just -- it deteriorates faster as you eat up that margin that you've got especially on the crew side.
So, to me really the learning is on just how important it is, Mike talked about this, to have that margin in the crew network especially as you operate. And then again, in a centered network with lower frequencies, as you have to use a part of that margin to move, cruise around, and those kinds of things, it's just not there. So, to me there were learnings that are really more there, the importance of staffing, than they were on the network design.
Yeah. I'll just pile on very end here, Duane, but can the biggest learning that I've had is, and I talked about it earlier, is this industry ecosystem. And it's dependent on having people at work. And it doesn't matter where it is. It can be hotels, it can be van drivers, it could be people working at the airports, but the people, if you have enough people, you can have an up-tempo business and that's what our business -- our whole industry's business wasn't as fastest tempo as everybody had planned it to be.
And that's where I think everybody got into issues with their on-time performance and their staffing in their crews. And so, everything that everybody else said, I totally agree with it. To me, it's people in the industry that slowly tempo down. We want to be an up-tempo operation and to get that we need more people, we needed more frequencies.
That's super helpful and maybe just a segway on that last point on labor availability, your ability to hire grant ground, airport staff, or whatever it is you need to support that operation. I assume as you raise rates, that creates demand and more people show up. But I guess normalizing for that, are you seeing any relief on that front? Are you seeing more people apply for open positions? Are you seeing any clouds parting on that front? Thank you.
Yeah, I think on the hiring front, it's just look across the whole United States or the world, hiring is just more difficult because the labor pool is smaller with folks who have not come back into the labor pool. So that's just where we all start. Southwest is a terrific Company, a terrific employer, terrific benefits, and so we do not struggle to get applicants. The applicant rates are a little below normal, which is to be expected given the number of open jobs. But no, we've not struggled to get applicants. I think the issues have probably been a couple of things. 1.
We spent 18 months or a little bit less hiring no one. I mean, basically, no one. In fact, we kind of dismantled the hiring machine and folks that work there and put them into other parts of the business. So, once you decide to hire, which for us was probably April, you have to decide and then you have to rebuild the team that actually works on all that. So, by the time we really got to moving, it's July or August of this year before you can really have new folks back into serving -- to working and serving the airline.
You also have to rebuild your training. But I think overall, again, it's a tough hiring environment but we are not struggling to get people. It is more competitive than ever, and it's especially competitive in our more entry-level jobs, for example, ramp. On the ramp at airports and it's more competitive in certain parts of the country, like in Denver for example. But no, we're not struggling to find people, we just need -- we need a lot, and it's a competitive market, and it takes a while to get them from the hiring -- for the point of hiring, to the point of actually being at work.
We are using all kinds of new techniques we had not used in the past, instant interviews, instant offers, contingent offers where somebody goes into training ahead of their -- the required things like drug testing and background checking, those kinds of thing. So no, I think -- I'm optimistic, we just have a lot to do trying to hire close to over 5,000 this fall and 8,000 next year.
I do think in fairness to your question, there is one thing that I learned here that I would like to share, and that is -- and I don't -- and for everybody on the phone, I don't know what your lives have been like over the past 20 months, but I bet they've been impacted dramatically. And many of you may be working remotely. So, because you've done that, your habits have changed and I -- we can all speculate on what things are different for you now. Our people are the same way and especially the people that went on leave, and in our peak Bob, didn't we have 15,000 people that went out on leave?
Yeah.
So, an assumption that I made was that we're going to call them and say, okay, it's time to come back. They're going to show up. Everything's going to be just like it was. And it's just not. And so, I do think I personally underestimated that coming into this year. I'll just repeat what I said earlier, for a long time, we had nothing to do, and then all of a sudden, bam, we had to pick up the pace like Mike was describing, and it's just been messy.
So, I think all that will smooth out both with our existing employees that we're trying to get back in several back and new hires as well, but it's not going to be here in the fourth quarter. It's going to take a while,
And one last question and I'll be done, is the -- I've gotten it a lot, which is the requirement to have new hires vaccinated, is that hurting you? Is it limiting your applicant pool? And the short answer is no. We have, I think 50,000 people in the hiring or applicant process Whenever we decided to shift and require that our new hires be vaccinated, and we've seen less than 2% drop out of the process because of that.
In other words, the 98 plus percent are already vaccinated or are going to get vaccinated in order to be able to come to work for Southwest Airlines, which number 1 tells you it's not an impediment, and number 2 tells you people want to work for Southwest Airlines, which is terrific.
Thank you very much.
And our next question today comes from Sheila Kahyaoglu with Jefferies. Please go ahead.
Good afternoon, guys. Thank you so much. Tammy, you talked about some of the inflationary pressures when it comes to labor and the team talked about that extensively. So, I want to switch gears, maybe talking about higher fuel prices and how you guys are thinking about that as it affects your route expansion.
Yes. So yeah, that, as you know, fuel cost has historically been 1/3 of our cost structure, so it's certainly an input. As we think about the pace of our expansion here. So, it just goes into the mix with all the other costs. But the good news is, we have a really great hedge in place to at least help launch the market prices that we're seeing here. And our -- the fair market value of our hedge book is over EUR900 million.
So, we've got a lot of really great protection in place should we continue to see fuel prices at these levels are higher. That said, we're still going to see some inflation and our fuel costs at higher fuel levels. So that will just obviously, be taken into consideration along with all of the rest of our cost structure as we plan our future capacity plans.
Great. Thank you so much.
And we have time for one more question today. And we will take our last question from Helane Becker at Cowen, please go ahead.
Thanks very much, Operator. Hi everybody, and thanks for the time. 2 questions. One, Gary, is this your last earnings call? Are you going to be back for next year? And I guess you'll be back for Investor Day.
Yeah, I'll be there for Investor Day and my transition date is February 1, so I'm going to come back and haunt you one more time. See you in January.
Okay. All right. Well, that's fair enough. I'll see you -- I guess we'll see you in December. And then my other question is really with respect to technology. You guys spent a lot of money on technology over the last few years, ramping up, getting ready for more business travel and getting ready for more TDS exposure. And now I'm wondering, like what's next, what's next on that front? And if you could just talk a little bit about that.
Now, Helane, every Company I think at this point is that some part of them they are a technology Company. It's central to everything that we do and obviously central to everything that we do at Southwest Airlines because we're so dependent. I would tell you we have all kinds of priorities and some of those are -- we have every year and ongoing and they are revenue initiatives that we'll be sharing with you in December. And most of those required technology, but I would -- and Mike can comment on this.
To me, if I had a headline, it's our investment in operational tools. Our people are terrific, we have good tools, but at our size and scale and complexity, I think there is a need to continue to invest heavily in the operation and in -- particularly heavily in the operational tools that we provide to our employees. They're terrific. but they could use tools that better help manage their day, manage the complexity. And so, to me, if I had to rank order, the number 1 objective is our continued investment in our -- what Mike and I are just calling modernizing our operational tools. Mike, do you want to add on to that?
Yeah. Helane, I think Bob covered it mostly. But when you think about modernizing the operation, we just -- we rolled out a significant enhancement to our maintenance systems this year, and we've got one last piece to get our our MAX aircraft and our 800 of rolled into that here in November. So that's a big enhancement, a big modernization, if you will, in our maintenance systems. And our maintenance systems that it was replacing is close to 30 years old.
So, I think that you could categorize the different kinds of opportunities we have in those areas. We've got things that we want to do in flight planning. We've got things we want to do in our crewing systems. We have things that we wanted to do as we are coordinating and executing our turns on the ground. And then we have investments we want to make in our decision support and optimization of technology. So, we've got a good array of things that we want to go do, and we can talk more about those a little bit more detail in our Investor Day.
That's very helpful. Thanks, everybody.
Thank you, Helane.
Okay. Well, that puts us at time here for the analyst portion of our call today. I appreciate everyone joining us.
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.
Thank you, Rocco, and welcome to everyone, members of media to our call today. We can go ahead and get started with the Q&A portion. Rocco, if will just give them some instructions on how to queue up for a question.
Absolutely. [Operator instructions] At this time, we will pause momentarily to assemble our roster. And our first question today comes from Mary Schlangenstein with Bloomberg News. Please go ahead.
Thank you. Gary, earlier today in an interview you were talking about how you don't really support forcing employees to get vaccinations as a corporate employer, and you said you were doing the bare minimum to comply with the federal mandate. And my question is, whether there's not some concern within Southwest that by saying things like that and proceeding in that way, that you're going to lose travelers to people who prefer an airline that can say 99.7% of their people have been vaccinated against Coronavirus?
Well, Mary, I think it's 2 different things. We have an executive order that's mandating the vaccines, and we're doing everything that we can to comply with that. Number 1, we're encouraging everybody to get vaccinated, and if they can't do that, then their option is to seek an accommodation. So, I don't see them as inconsistent, it just simply -- I for one, am empathetic with those who don't want to be vaccinated, and it's not -- I don't see that it is our role to enforce a mandate coming from us.
This is the U.S. Government's President of the United States, I respect that, and we're doing everything that we can in good faith to implement it. So, I don't believe that we're going to be in any difference spot than any other airline in terms of our health and safety,
And would it not help consumers though if you were to disclose the percentage of your employees who are already vaccinated?
Well, we will at the right point. The deadline to comply with the federal -- the executive order is November the 24th. And right now, we've got a majority of our employees have reported. Of those who have reported, the super majority of them have been vaccinated. But we still have a large percentage who have not reported, and it would just be pure speculation on our part how many of those are already vaccinated, we just haven't heard from them yet for whatever reason. So just be patient with us. When we get to November the 24th, we will obviously be sharing that information.
Thank you very much.
And our next question today comes from Alison Sider with Wall Street Journal. Please go ahead.
Hi, thanks so much. You talked a lot over the last couple of months about taking some of the depth out of your network and adding all the breadth with the new cities. And I guess just curious, in retrospect, given all the complications that it has caused, if you still think that that was the right strategy. If you could go back in time, do you still think it made sense that that's going to pay off in the long run or have those complications in the last couple of months made you question it at all?
Well, I disagree with the assertion that it's created complications. Our primary challenge is we just don't have enough people, resources to match up with the effort required to operate flights and serve our customers. When we do get into a situation where we're trying to manage irregular operations. We've got a great strategy with backbone, with depth. And that's clearly on our work plan for 2022, but Alison, there's just -- there's no way to manage through a pandemic other than when the demand is cut by 98%, it would be foolish to fly the same schedule.
So, we -- that schedule has served us well. It's something that we're very enthused about going forward. Now we very quickly and happily shifted to a need to go back and restore some depth in the network, and that will be very, very welcome. But in any event the kinds of challenges that we've had this summer, we'd have them whether we had the old schedule or whether we had this schedule. They're -- the root cause is we just need more people resources, period,
I think the data proves it out. If you look at our performance from August and then look September and beyond, when we reduced the amount of flying. Our on-time performance substantially increased into September all the way up to just before October 8th. You added the fact that there's one runway in Dallas which is a big -- probably it was more than we expected. Our performance during that period of time with reduced activity but still this broad network was satisfactory. Now, we want more depth because it helps our business customers, it helps recovery, all things being equal. But it's a tailwind we're seeking, not necessarily a root cause.
And it's not as if we have dismantled the network, it was built over 50 years. That's also incorrect. It's a pretty big change from where we were, but certainly the bones are still there.
Thank you.
Thank you.
And our next question today comes from Leslie Josephs at CNBC. Please go ahead.
Hi. Good morning, everyone or good afternoon, everyone. What was the reason for pulling back on that plan to do unpaid leave for the people that have exemptions that haven't yet been approved or we're still being reviewed? And then my second question just, is there any concern about your network next year, particularly in the summer with international coming back from your competitors who are really ramping up other destinations? So just curious how you're thinking about competition from other places to go.
I'll let you guys take the letter. I'll talk about the vaccines. And if you don't mind, I'm just going to give you 2 minutes on what our objectives are here. 1. We are -- and this somewhat ties in with Mary's question. We want this pandemic to end, so we certainly want to do everything that we can to encourage people to get vaccinated. I for one believe that that is the past, and that's the path that we're promoting. We have tried to encourage people to get vaccinated and further with incentives, as opposed to using a more punitive approach as an example like charging employees if they are unvaccinated.
So, we're not doing the latter, we're doing the former, which is try to encourage. So, I think that's important as a background here. Second, our objective is to take care of our people in every way that we can; in terms of their safety, in terms of their health, in terms of their job security. I think everyone should get vaccinated. However, I respect other views and especially when you consider how much information there is out there, and pretty much any view you want to find support for, you can. And that has to obviously be confusing for people. So, I don't feel that it's up to me to force people to get vaccinated.
So, I think that's important in answering your question that you know that those are two of our objectives. As a practical matter, we've got important trips for our customers coming up in this quarter. In other words, the holidays. The last thing I want as our people distracted was something like this vaccine mandate. The last thing I want is for people to fear that they won't be able to work or have a job. And so, we simply put that to rest. And that ties in with -- so that objective, I'm sure you would readily recognize that it's fourthly, which ties into that. We are a government contractor. We have been for decades.
It is important to us in a variety of ways. And number one, we serve the military with charters. And number two, we're part of the civil reserve air fleet, which as an example, just helped with African refugees. So those are important to us. In addition to that, they are our largest customer. We carry the mail; we carry a number of government employees as passengers under this contract. So, we're going to do everything that we can to maintain that contract. And we didn't ask for the mandate, but we got it. And the order is from the White House, so all of the agencies we actually contract with, they're getting direction, which is very general from the White House.
And as that direction evolves, we evolve with it. And I think what again, just to tie in Mary's question, all I was trying to communicate to everyone is that we are not on a campaign here to force everybody to get vaccinated. What we are trying to do is whatever we need to do to comply with the executive order so we can maintain our government contract status. And if that means that we can do that and not force people off the job in December, that's why we -- this is an evolving process working with the government in terms of what they expect.
And very clearly, we wanted our employees know that nobody is going to lose their job on December the 9th if we're not perfectly in compliance. It is a work in progress and we're going to continue working in good faith to meet the requirements of the executive order. But I've already said and I'm sure you heard that we're not going to fire anybody who doesn't get vaccinated. How we work through the people that don't get vaccinated or don't seek an accommodation, we're going to have to figure out and we're working with the government on that. But we're not going to fire anybody.
It makes no sense that we would not respect that and find some way to work with our people on that. And that's what we're determined to do is get the right balance between taking care of our people and maintaining our government contractor status.
Thank you. Our next question today sounds from Dawn Gilbertson, as USA Today. Please go ahead.
Hi. Good morning and unbelievably, it's still morning here. I think this is for Gary or Bob. On the vaccine mandate from the consumer perspective, United CEO made some pretty strong comments yesterday warning about potential holiday travel chaos that other airlines that are still going through this vaccine mandate issue going so far as to say buyer beware. Could this follow any follow-up from this trip you up over the holidays? And if not, why not? And one of the examples outside that he gave was, say there is a testing regimen put in place.
He said that potentially, you guys could have a lot of last -minute -- he didn't say you specifically. Airlines could have a lot of last -minute cancellations as people tested positive, and so forth. So, I just would like to get your thoughts on that. And secondly, I would also like to know who is deciding? Is it Southwest people who gets these exemptions and how rigorous a process is? Because it seems like you guys are encouraging people to apply for the -- thank you.
Yes, we're not going to disrupt travel. And the White House has been clear that they do not want travel disrupted ever, much less during the holidays. And that they understand that there is a process that we work through with people who have not complied either by being vaccinated or being accommodated. So, they have made that clear, and we are very well aligned with the White House direction on all of that. So again -- and Dawn, I would just say, my duty is to take care of Southwest Airlines. My duty is to take care of our people and our customers, and we're not going to let this disrupt any of our customers' travel, especially during the busy holiday season.
With respect to accommodations, this is something that is longstanding within the Company. It is a function that we have in Linda's department and Linda you're welcome to speak to this; but we have a team of experts who know what the rules are and know how to apply them in terms of medical or religious accommodations. I believe it's Title VII for religious and the ADA for medical. So, it's not anything new and there are experts at it. What we're trying to do right now is to see what accommodation requests we get so that we can ensure that we're consistent.
In terms of who we accept and who we deny. Obviously, we're trying to work with our people here and take good care of them. In terms of encouragement, we are encouraging people to get vaccinated, period. We bet -- there's nothing new that, I've been doing that since the vaccine came out and nothing has changed there. Only thing that's changed is we've got this executive order that mandates the vaccine and we are working through that in a good faith way and with our best efforts. Is there anything else you want to add?
What is the [Indiscernible] on that?
Now, sure.
Do you -- are you guys seeking an extension on this deadline from the government?
We're using our best efforts to make the deadline. We have not asked for an extension. We're seeing great progress from our employees and we'll see what happens. We'll see where we get to on November 24th, which is the key date. In other words, to make the December 8th deadline because of the, because of the two-week vaccination time period. Anything you want to add on the accommodation process, Linda?
No, I think you handled it well, it's just our all-out efforts around education and awareness is to get employees in one of two buckets, and that is to be vaccinated or to seek an accommodation if that is what they need.
And as I think everyone on the call knows, it's a political issue, it's a polarizing issue, and there are very strong feelings among some on both sides of this question. So, my job is to take care of Southwest, to take care of all of our people, whether they're on one side or the other, and we're going to do our darnest to accomplish that.
Thanks.
Ladies and gentlemen. Our next question comes from David Koenig with The Associated Press. Please go ahead.
Good afternoon and I apologize. My questions have been mostly asked and answered, but just to clarify a couple of things, Gary. Do you have an assurance from the administration that they will let contractors as such as yourself accept testing instead of vaccination as an accommodation for some of your employees? And my other question is -- or maybe not a question, but I raised this earlier with the folks at American. United and Delta gave numbers and percentages on the number of people vaccinated early on and then just updated them, and I'm wondering why you can't do that as well.
David, I just can't pass up the opportunity to say that I agree with your thought that executives ought to have at least two alcoholic drinks before these conference calls. However, I will say that no one in this room has done that. So, I believe that the Herb Kelleher way, but we're not subscribing to it, at least not yet. And now I've talked enough and I forgot your questions. On the percentages, I'm not prepared to share percentages because I don't believe they would be helpful or realistic.
We've got a November 24th deadline that we're working hard towards. The majority of our employees have responded to the call for either an accommodation or a vaccination, And the super majority of those who have reported so far are vaccinated. But I don't know whether that percentage would be meaningful or relevant to because there's a large percentage that we have not heard from yet, and I have no idea what they will do or how vaccinated they are. And just remind me what your first question was? Oh, the testing.
I was wondering [Indiscernible] in the administration.
No, we have -- of course not. You've got the executive order, and so do we. And you either get a medical accommodation or religious accommodation. Now, whether there's a testing requirement for those who are accommodated, there's no guidance in the order on that. We're aware obviously, of the proposed OSHA regulation, which has not come out, and which does provide for testing. So, the two are not reconciled for us at this point. We are working on all fronts. But yeah, we know what you know on that front.
Okay.
Thank you, ladies and gentlemen. This concludes our question-and-answer session. I'd like to turn the conference back over to Ms. Rutherford for any closing remarks.
Thank you, Rocco. Of course, any members of the media who have follow-up, please contact our communications group. They are standing by at 214-792-4847. You can always visit www. swamedia.com. Thank you all for joining us.
Thank you, ma’am. This conference is now concluded. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.