Southwest Airlines on Thursday forecast a possible decline in third-quarter unit revenue as an oversupplied U.S. market forces airlines to supply discounts on their tickets during what is generally essentially the most lucrative time of the 12 months.
Southwest said unit revenue for the present quarter could decline as much as 2% from a 12 months ago and costs (excluding fuel) could rise as much as 13%, with higher expenses weighing on the airline through the tip of 2024.
“Right now, there is simply more capacity than demand at the domestic airport,” Southwest CEO Bob Jordan said in the course of the company's earnings call. Jordan said capability increased 6% within the second quarter and the airline is “working aggressively” to scale back capability to 2% within the third quarter.
This is how Southwest performed within the second quarter in comparison with Wall Street expectations, in accordance with LSEG consensus estimates:
- Earnings per share: 58 cents adjusted in comparison with expected 51 cents
- Revenue: $7.35 billion in comparison with expected $7.32 billion
The Dallas-based airline said its second-quarter revenue rose 4.5 percent from a 12 months earlier to $7.35 billion – a record. But profit fell greater 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 keeping with the airline's lowered forecast last month.
Southwest reported adjusted earnings per share of 58 cents, beating analysts' expectations.
“There are areas where we need to improve and we are aware of that and are addressing it as a management team,” CFO Tammy Romo said in the course of the conference call. “We are actively reviewing our capital return policy and our goal is ultimately to return shareholder returns to historical levels.”
Southwest said Thursday that it was in talks about compensation for Boeing Because its sole aircraft supplier is struggling to deliver planes on time because of safety and production crises, Southwest still expects only 20 deliveries from Boeing this 12 months – lower than half the number it previously forecast.
The airline is within the midst of a revamp amid mounting pressure from investors to do more to spice up revenue. Elliott Investment Management disclosed last month that it holds an almost $2 billion stake within the airline and called for a change in leadership.
Earlier Thursday, Southwest announced it will abandon open seating, offer more legroom seats on some Boeing aircraft and start flying overnight, the largest changes to its business model in greater than five many years of existence. The changes, which can take effect next 12 months, 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 within the press release.
Jordan added that the corporate had sold “too many seats for the summer peak season” at lower costs, leaving the corporate with fewer seats in higher booking classes later within the booking curve. He said the corporate had hired outside experts and was putting more senior executives in the realm to grasp what was happening.
“We have a strong action plan and that action plan is being implemented,” Jordan said.
Delta Airlines And United Airlines Executives said earlier this month they expected capability within the U.S. to slow in August, which could lead on to higher airfares.
The Federal Aviation Administration announced Tuesday that it’s launching a security review of Southwest. Jordan said in the course of the conference call that he spoke with FAA Administrator Michael Whitaker earlier this week to reaffirm each Southwest's and his personal commitment to safety.
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