Southwest Airlines on Thursday forecast a possible drop in unit revenue for the third quarter as an oversupplied U.S. market has forced airlines to discount tickets during what will likely be essentially the most lucrative period of the 12 months.
Southwest said unit revenue for the present quarter could fall as much as 2% over last 12 months and nonfuel costs could rise as much as 13%, with higher expenses weighing on the airline through the top of 2024.
“There’s simply more capability, on the domestic side, than demand immediately,” Southwest CEO Bob Jordan said in the course of the company’s earnings call. Jordan said capability was up 6% within the second quarter and that the airline is working down capability “aggressively” to moderate it to 2% within the third quarter.
Here is how Southwest performed within the second quarter compared with Wall Street expectations, in accordance with consensus estimates from LSEG:
- Earnings per share: 58 cents adjusted vs. an expected 51 cents
- Revenue: $7.35 billion vs. $7.32 billion expected
The Dallas-based airline said its second-quarter revenue rose 4.5% from last 12 months to $7.35 billion, a record, but its profit dropped greater than 46% to $367 million, or 58 cents a share. Revenue per available seat mile, a gauge of airline pricing power, fell 3.8%, roughly consistent with the carrier’s reduced forecast last month.
Southwest reported adjusted per-share earnings of 58 cents a share, above analysts’ expectations.
“There are areas we’d like to enhance, which we’re owning and addressing as a management team,” CFO Tammy Romo said in the course of the earnings call. “We’re actively reviewing our return of capital policies and ultimately, our goal is to revive shareholder returns to historic levels.”
Southwest said Thursday that it’s in talks for compensation from Boeing as its sole supplier of airplanes struggles to deliver aircraft on time due to its safety and manufacturing crises. Southwest said it continues to expect just 20 deliveries from Boeing this 12 months — lower than half of what it had previously forecast.
The airline is in the course of an overhaul as pressure mounts from investors to do more to extend revenue. Elliott Investment Management disclosed a virtually $2 billion stake within the carrier last month and called for a leadership change.
Earlier Thursday, Southwest announced that it would dispose of its open seating plan and offer some seats on its Boeing aircraft which have extra legroom and add overnight flights, the largest changes to its business model in its greater than five many years of flying. The changes, which start next 12 months, would make Southwest more like its network carrier rivals.
“We’re taking urgent and deliberate steps to mitigate near-term revenue challenges and implement longer-term transformational initiatives which can be designed to drive meaningful top and bottom-line growth,” Jordan said in the discharge.
Jordan added that the corporate sold “too many seats early for the height summer travel period” at lower costs, leaving the corporate with fewer seats to sell later within the booking curve in higher booking classes. He said that the corporate hired third-party experts and is adding more senior leadership over the world to grasp what is going on on.
“Now we have a powerful motion plan, and that motion plan is being put into place immediately,” Jordan said.
Delta Air Lines and United Airlines executives earlier this month said they expect to see U.S. capability begin to moderate in August, which could lead on to higher fares.
The Federal Aviation Administration announced Tuesday that it’s launching a security review of Southwest. Jordan said in the course of the earnings call that he spoke to FAA Administrator Michael Whitaker earlier this week to bolster each Southwest’s and his personal commitment to safety.
