Witness the majestic sight of a Southwest Airlines Boeing 737-700 aircraft landing at Ronald Reagan Washington National Airport DCA in Arlington County, Virginia. Against the backdrop of the Potomac River, this aircraft gracefully glides over the water and buildings, creating a breathtaking scene of aviation prowess.
Credits: Image by Nicolas Economou | Nurphoto | Getty Images
Southwest Airlines shares experienced a significant decline of nearly 9% on Thursday following the airline’s report of lower unit revenue and higher costs for the second quarter. These trends are forecasted to persist into the current quarter.
The second-quarter unit revenue of Southwest Airlines decreased by 8.3% compared to the previous year. Southwest attributed this decline to a policy change made last summer that removed the expiration dates from Covid pandemic travel credits.
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The airline anticipates a further decline in unit revenue, projecting a potential 7% decrease during the third quarter while simultaneously increasing capacity by 12% compared to the previous year. Southwest attributes this decline to challenging comparisons with the surge in travel demand experienced in 2022, along with higher than seasonally-normal growth.
According to the latest inflation read, airfare in the U.S. has declined since 2022, despite airlines enjoying record revenue in recent months.
Southwest is actively “revamping” its 2024 schedules to adapt to changing customer demand as business travel revenue gradually recovers, yet still lags behind pre-pandemic levels.
“We are aligning our network, fleet plans, and staffing to better adapt to the current business environment,” stated CEO Bob Jordan in an earnings release.
Jordan mentioned that the revamp may lead to larger than usual reductions in capacity during a period when demand typically increases. Additionally, the airline plans to reduce short-haul flights in favor of longer ones and minimize very early and very late departures.
Here is how Southwest performed in the second quarter compared to Wall Street expectations based on Refinitiv consensus estimates:
- Adjusted earnings per share: $1.09 versus an expected $1.10
- Total revenue: $7.04 billion versus an expected $6.98 billion
The airline’s net income for the second quarter of 2023 decreased to $683 million, or $1.08 per share, a 10% decline from the $760 million, or $1.20 per share, reported in the same quarter of 2022. However, revenue for the same quarter reached a record-breaking $7.04 billion, surpassing analyst expectations and reflecting a 4.6% increase from the previous year.
Furthermore, operating expenses rose by more than 12% compared to the previous year. Excluding fuel costs, expenses increased by 7.5%, aligning with the company’s earlier cost guidance due in part to planned wage increases associated with labor agreements in effect.
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