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Southwest Airlines Co. (NYSE: LUV) today reported its third quarter 2021 financial results:
•Third quarter net income of $446 million, or $.73 per diluted share, driven by a $763 million offset of salaries, wages, and benefits expenses related to the receipt of Payroll Support Program (PSP) proceeds under the American Rescue Plan Act of 2021
•Excluding special items1, third quarter net loss of $135 million, or $.23 loss per diluted share
•Third quarter operating revenues of $4.7 billion, down 17.0 percent compared with third quarter 2019
•Ended third quarter with liquidity2 of $17.0 billion, well in excess of debt outstanding of $11.2 billion
Gary C. Kelly, Chairman of the Board and Chief Executive Officer, stated, Third quarter 2021 was a challenge for us, operationally. Despite the deceleration of traffic in August and September due to surging COVID-19 cases, the third quarter 2021 demand and revenue performance was quite strong and a dramatic improvement from a year ago. That was a bright and encouraging sign of recovery, and I was especially pleased with July's revenue and profit performance. We were aggressive with our capacity plans for third quarter 2021, coming close to pre-pandemic third quarter 2019 available seat miles. Our active (versus inactive) and available staffing fell below plan and, along with other factors, caused us to miss our operational ontime performance targets, and that created additional cost headwinds. The net effect, including a revenue penalty of $300 million due to the COVID-19 surge, was a loss of $135 million, excluding special items.
We have reined in our capacity plans to adjust to the current staffing environment, and our ontime performance has improved, accordingly. We are aggressively hiring to a goal of approximately 5,000 new Employees by the end of this year, and we are currently more than halfway toward that goal. Our 2022 capacity planning reflects more conservative staffing assumptions, as well, all compared to historical norms. With respect to our fourth quarter 2021 revenue outlook, while there are lingering effects from the summer COVID-19 surge and recent operational challenges, we are encouraged with renewed momentum in leisure and business traffic, revenues, and bookings—especially over the holidays. Except for higher fuel prices, fourth quarter 2021's overall results are trending better than third quarter 2021.
I am very proud of our People. They worked especially hard in challenging circumstances. We made good progress in our pandemic recovery in third quarter 2021, and I expect more in fourth quarter. I'm very excited about the demand recovery and our prospects for 2022. Our Leadership has an excellent plan with a laser focus on execution. We are in a very strong financial position, and I thank all of our People for their resilience, their resolve, and their devotion to serving our valued Customers.
Revenue Results and Outlook:
The Company's third quarter 2021 operating revenues increased 161.0 percent, year-over-year, to $4.7 billion, but decreased 17.0 percent compared with third quarter 2019 due to the impact of the pandemic. Third quarter 2021 operating revenue per available seat mile (RASM, or unit revenues) was 12.07 cents, a decrease of 15.7 percent, compared with third quarter 2019, driven primarily by a passenger revenue yield decrease of 15.0 percent and a load factor decrease of 2.8 points.
Although less severe than prior waves of rising COVID-19 cases, the negative effects associated with the Delta variant are estimated to have impacted August and September 2021 operating revenues by approximately $100 million and $200 million, respectively. Despite the demand deceleration, third quarter 2021 operating revenues and revenue passengers reached 83 percent and 87 percent of 2019 levels, respectively, which is meaningful progress and a strong indication of the pent-up demand for air travel. Revenue and booking trends began to significantly improve in the second half of September 2021 as COVID-19 cases declined, which resulted in an improvement in the Company's September and third quarter 2021 operating revenues as compared with the Company's previous estimation. September 2021 managed business revenues declined 73 percent compared with September 2019.
The Company is encouraged by recent improvements in underlying revenue trends as COVID-19 cases have declined; however, the lingering effects from the deceleration in bookings in third quarter 2021 are estimated to negatively impact fourth quarter 2021 operating revenues by approximately $100 million. For October 2021, despite the improvement in revenue and booking trends experienced in the second half of September 2021 continuing, thus far, into this month, October operating revenues include two headwinds—an estimated $40 million negative impact due to the lingering effects of the Delta variant and an estimated $75 million negative impact as a result of flight cancellations from operational challenges experienced earlier this month and related Customer refunds and gestures of goodwill. Despite these headwinds, and based on current bookings, the Company's guidance for October 2021 operating revenues remains unchanged, as the recent improvement in travel demand trends offsets the aforementioned headwinds. Business revenues continue to lag leisure revenue trends; however, the Company is encouraged by the recent improvement in business travel demand resulting in steady improvements in business bookings, thus far, in October 2021. Beyond October 2021, the current booking curve for the holidays is trending in line with 2019 levels.