As Costs Rise, Southwest Airlines’ Unit Revenue Declines By 9%

(CTN News) – In afternoon trading on Thursday, Southwest Airlines shares were down about 9% after the airline reported lower unit revenue and higher costs for the second quarter and said the trend looks likely to continue into the third quarter.

Southwest Airlines said that its second-quarter unit revenue decreased 8.3% from a year earlier as a result of a change to its policy last summer, when expiration dates were removed from pandemic travel credits issued by Covid.

During the third quarter, the carrier says it expects unit revenue to fall by up to 7% on capacity that has increased by 12% compared to the same period last year.

As it explained, this was due to a surge in travel demand due to pent-up demand in 2022, and a higher rate of growth than seasonal norms.

While Southwest Airlines have reported record revenue in recent months, according to the latest inflation reading, airfares in the U.S. have fallen from 2022 levels.

According to Southwest Airlines, it will revise its schedules for 2024 in response to changing customer demands as business travel revenue is recovering but still lags behind pre-pandemic levels.

According to Bob Jordan, CEO of the company, “We are working hard to align our network, fleet plans, and staffing to better reflect the current business climate”, he added in an earnings release.

A Jordan said that the revamp could result in larger drops in capacity than usual when demand is expected to pick up. As part of the plan, some short-haul flights will be reduced in favor of longer flights, as well as the number of early and late departures for the airline.

In accordance with Refinitiv consensus estimates,

Southwest Airlines performed well in the second quarter,

compared with expectations on Wall Street:

Earnings per share adjusted for inflation were $1.09 as opposed to $1.10 that was expected

Revenue of $7.04 billion compared to an expectation of $6.98 billion for the full year

There was a 10% drop in the airline’s net income during the second quarter of 2022 from $760 million, or $1.20 per share, during the first quarter of 2022, which was down to $683 million, or $1.08 a share.

According to the company, Southwest Airlines revenue for the three months ended June 30 reached a record $7.04 billion, surpassing analyst expectations and up 4.6% from the same quarter last year.

As a result, operating expenses rose by more than 12% compared to the previous year. In the absence of fuel, the company’s expenses were up 7.5%, at the upper end of the company’s previous cost guidance, which was partly prompted by planned wage increases based on open labor agreements.

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