Southwest Airlines on Thursday forecast a possible decline in third-quarter unit revenue as an oversupplied U.S. market forces airlines to offer discounts on their tickets during what is normally the most lucrative time of the year.
Southwest said unit revenue for the current quarter could decline as much as 2% from a year ago and costs (excluding fuel) could rise as much as 13%, with higher expenses weighing on the airline through the end of 2024.
Here's how Southwest performed in the second quarter compared to Wall Street expectations, according to LSEG consensus estimates:
- Earnings per share: 58 cents adjusted compared to expected 51 cents
- Revenue: $7.35 billion compared to expected $7.32 billion
The Dallas-based airline said its second-quarter revenue rose 4.5 percent from a year earlier to $7.35 billion – a record. But profit fell more than 46 percent to $367 million, or 58 cents a share. Revenue per available seat mile, a measure of the airline's pricing power, fell 3.8 percent, roughly in line with the airline's lowered forecast last month.
Southwest reported adjusted earnings per share of 58 cents, beating analysts' expectations.
“Our second quarter performance was impacted by both external and internal factors and fell short of what we believe we can achieve,” CEO Bob Jordan said in an earnings release.
Southwest said Thursday that it was in talks about compensation for Boeing Because its sole aircraft supplier is struggling to deliver planes on time due to safety and production crises, Southwest still expects only 20 deliveries from Boeing this year – less than half the number it previously forecast.
The airline is in the midst of a revamp amid mounting pressure from investors to do more to boost revenue. Elliott Investment Management disclosed last month that it holds a nearly $2 billion stake in the airline and called for a change in leadership.
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Earlier Thursday, Southwest announced it would abandon open seating, offer more legroom seats on some Boeing aircraft and begin flying overnight, the biggest changes to its business model in more than five decades of existence. The changes, which will take effect next year, would bring Southwest closer to its network competitors.
“We are taking urgent and targeted steps to mitigate near-term revenue challenges and implement longer-term transformation initiatives designed to drive meaningful revenue and earnings growth,” Jordan said in the press release.
Delta Airlines And United Airlines Executives said earlier this month they expected capacity in the U.S. to slow in August, which could lead to higher airfares.
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