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Southwest Airlines CEO Is Very Optimistic About Return Of Travel

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Following is the unofficial transcript of a CNBC interview with Southwest Airlines Co (NYSE:LUV) CEO Robert Jordan on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET) today, Tuesday, February 1. Following is a link to video on CNBC.com:

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Southwest Airlines CEO  Robert Jordan: I’m Very Optimistic About Return Of Travel

ANDREW ROSS SORKIN: Joining us right now on his first day on the job no less is Bob Jordan, the new CEO of Southwest Airlines. Bob, we also hear that today marks 34 years since you've been with Southwest so we want to wish you a very Happy Anniversary and a very happy first day in the role.

ROBERT JORDAN: Thank you very much. It's, it's hard to believe it's 34 years but, you know, it's a wonderful company and time flies. That is for sure. Thanks for having me today.

SORKIN: Well, we're glad you could join us on your first day. We want to understand where we are as you see it in terms of the travel landscape and then I want to drill down in terms of understanding how you think things might evolve or change under your leadership. Right now, of course, the airline is still trying to deal with the Omicron variant and, and that component of it and then we've also seen these weather delays throughout the country. And and so how, you know, how far are we away from getting back to what felt like some semblance of normal?

JORDAN: You know, if you look back at the fourth quarter, we were actually really close. Demand in the fourth quarter was terrific, especially on the leisure side. At Southwest Airlines, we had revenues that were 88% of 2019. Now our business, you know, demand is still down about 50%. So, I believe that the, you know, the Omicron variant was an impact. I think it was a temporary. You know, the impact came and went away fairly quickly so it had an impact on the fourth quarter but I'm very optimistic in the return to travel that's for sure.

SORKIN: In terms though of hitting employees, your ability to hire employees, the cost of employees, the cost of moving planes around, we've been dealing with all these weather issues and, and clearly, you know, sick outs and other things, how far are we away from getting back on that front to normal?

JORDAN: You know, the, the labor market is unlike anything that I've, I've ever seen in my 34 years and I think you're gonna hear that from every business. We, we never struggled to hire at Southwest Airlines. It's an awesome culture. We hire awesome people. But we are looking to hire a lot of folks. We hired thousands in the fourth quarter. We're hiring 8,000 here in 2022 but we're behind so getting staffed is the key. Right now, I would tell you, we probably have 35 to 40 aircraft that we are unable to operate simply because we're unstaffed so our key to getting back to being efficient is getting staffed and we are just absolutely laser focused on that.

SORKIN: And how has the issue of wages changed given just how tight the labor supply is?

JORDAN: You know, the wage, there's no doubt there's wage inflation, that's for sure. We've had to move our entry, our starting wages several times. So we were roughly say $13.50 for most of our operational entry level jobs, we moved that to $15. We're in the process of moving that the $17 an hour and then at certain airports that are even more competitive like in Denver, it's $20. But that's what it's going to take. The rates are moving up and we're going to remain competitive and I'm confident we will get staffed.

SORKIN: When you look at some of the investments you're going to be having to make in planes and technology and all of that, you've made some comments recently about really trying to adjust for this future. What does that really look like to you?

JORDAN: You know, we've, we've got so many opportunities in front of us. We will, we will take in all likelihood 114 aircraft here in 2022. The more efficient MAX that will replace the NG which is a great story. We've got a great order book with Boeing in front of us. We have a lot of opportunities. It's going to take about 125 aircraft just to restore the network back to where it was pre-pandemic because we opened 18 cities and invested in Hawaii and it's going to take 125 aircraft or so to do that. Beyond that, we're getting gates in Denver and Phoenix and Nashville and Baltimore and others so there are just a host of growth opportunities in front of us so I'm excited about our future.

SORKIN: But what's the CapEx gonna require? And the reason I ask is you have talked about back-end technology. You've talked about customer technology on the apps, you've talked about Wi Fi in the planes, you've talked about electric plugs in the planes which you folks don't have and a lot of other airlines have, do have now.

JORDAN: We have a, we've got a wonderful technology department, a lot of your investments beyond aircraft are technology these days. We just finished the largest technical software project in airline history, which is a new technical operation system. But we manage our CapEx. We manage it year to year. It's a little lumpy with aircraft here, but no we've, we've got planned investments in particular in what I would call modernizing our operation as we head to 5,000 flights a day and a fleet of 1,000 aircraft, we have a lot of opportunity to be even more efficient around our terms and our tools and that'll actually help with our costs. But no, I'm not worried about our CapEx. We always manage it, we've managed it historically and we'll manage it going forward.

SORKIN: Becky was just talking to the CEO of Exxon, Darren Woods. We've watched the price of gasoline as you know go up, up and up. Let's talk about how you're thinking about that and potentially hedging it.

JORDAN: We had a really good hedge in place as we, you know, as we always do. It's harder to work the hedge these days because with volatility, it's just expensive to hedge but we've got a great hedge here in 2022. We are building a hedge in 2023. I think the book value of the hedge right now is right at a billion dollars. But no there's, there's a lot of, there's a wide range of calls for crude oil right now most of those are bullish, but you've got some bear calls as well so we'll just manage through it like we always do. And again, I'm glad we’ve got a good hedge book in place.

SORKIN: What’s the Bob Jordan betting line on fuel costs?

JORDAN: You know, fuel affects us all. So on a relative basis, we're all gonna pay roughly the same thing as airlines for fuel. It's just really hard to say, you know, what's the bet for, for the economy and inflation and the potential for a recession and rate hikes, but I suspect that we’ll stay sort of roughly where we are for a while, but really, it's very, it's very hard to tell and we'll manage through it.

SORKIN: And then finally I want to just talk about pricing. I was on Priceline the other day, it's fascinating if you want to take it in the next two weeks, cheap, cheap, cheap. You want to take it in three months from now, it is sky high. So, what are you expecting especially as the summer and fall come?

JORDAN: Well, we've had, in particular in the fourth quarter, our yields and our pricing have actually held up really well and that's at a climate where, you know, businesses still down roughly 50% so I've been actually really happy with, with our yields and our pricing. The airline industry is always very competitive. A lot of that depends obviously on our plans and others plans but I'm, I'm hopeful well number one, we're going to compete no matter what. It's all a battle for customers. We've always been able to win. And I feel like we have a, we've got a good yield story in front of us, but we'll just have to see.

SORKIN: Right. And then as you as you look at the world hopefully in a post Omicron landscape, I hope we can get past it but that maybe it's something that will become seasonally and—

JORDAN: We all hope that.

SORKIN: Your, your predecessor got in a little bit of hot water, more than more than a little bit for suggesting that that customers and, and others may not need to wear masks on, on planes and probably shouldn't. What's your take on that long term?

JORDAN: You know, the mask, it kind of is what it is to me. The, I, if you sort of look past the medical advice around the mask, at some point I want to get away from them simply because it's hard for our terrific employees to show their hospitality when they're wearing a mask all day. They love to interact with our customers. They love to show their fun attitudes, and it's just hard when you're wearing the mask. I think well obviously we'll follow the CDC. The CDC, you've seen some changes recently in terms of the quarantine guidelines, those kinds of things. I think the CDC will do the right thing and we’ll follow the guidance but I'm hopeful as you look forward toward the summer, maybe in into the rest of ’22, we'll see the masks come off but it's not our, it's not our call here at Southwest Airlines.

SORKIN: Bob Jordan, Southwest Airlines new CEO on day one. We wish you well Bob and we hope you will come on back and make it a regular thing. Thanks.

JORDAN: Will do, thank you. Thank you so much. Thanks for having me today. Appreciate it.

SORKIN: Good luck. Thanks again.