Southwest Airlines reported a 30% decline in profit as increasing costs outweighed strong leisure demand and additional ancillary and loyalty programme revenue during the summer travel season.
The Fort Worth-headquartered airline said on 26 October that its third-quarter profit fell to $193 million, from $277 million in the same three months of last year.
Revenue rose 4.9% year on year to $6.5 billion during the period, but operating expenses also increased, by 10% year on year to $6.4 billion. Maintenance and repairs as well as salaries and benefits expenses led with the largest increases.
While the company experienced lower-than-expected close-in bookings in both August and September, impacted by seasonal trends, overall demand remained stable through the quarter, Southwest says.
“Overall, we are pleased with our accomplishments in third quarter 2023,” chief executive Bob Jordan tells analysts on the company’s quarterly earnings call. “We generated another quarter of profitability and record third-quarter operating revenues. Revenue strength was driven by solid leisure demand throughout the quarter and by managed business continuing to perform largely as expected – as we continue to gain initiative-driven market share in the corporate travel space.”
“We are proud to be flying our full fleet and completing the restoration of our network,” he adds.
Load factor in the third quarter fell to 80.7% from 85.4% and Southwest’s capacity in available seat miles (ASM) rose 12.5% year on year.
That said, the airline plans to slow capacity growth “to absorb current capacity, mature development markets and optimise schedules to current travel patterns”.
The company’s aims for the next year include “driving out inefficiencies, increasing productivity, improving reliability and returning our margins back to historical levels”, Jordan adds.
So far in the fourth quarter, “overall demand for travel remains stable, including strong bookings to-date for the holiday travel periods”.
“While leisure demand remains healthy, leisure trends appear to be returning to historically seasonal norms, and business trends continue to be stable,” the company says.
For the first quarter of 2024, Southwest sees capacity increasing 10-12% year on year, slightly lower than its previous estimate of 14-16%. For the full year 2024, the airline’s capacity increase will be up 6-8% from 2023, it estimates.
“The company continues to plan for sequentially lower capacity growth, year-over-year, in each quarter of 2024, and anticipates achieving its target of mid-single-digit year-over-year ASM growth in the second half of 2024,” Southwest says.
The airline ended the quarter with 817 aircraft in its all-Boeing 737 fleet and announced a restructuring of its order book with the US airframer, giving it flexibility with aircraft deliveries through 2031.
The company now expects to acquire 780 aircraft between 2023 and 2031 (including those already delivered this year), up from a previous 564. The 780 figure includes 302 of the still-uncertified 737 Max 7, 271 Max 8s and 207 options for either Max 7s or Max 8s.