Over the summer Southwest Airlines seemed to have put its worst days behind it.
The airline may not have fully mended fences with customers who were burned during its holiday-season meltdown, but people were coming back to the airline in record numbers. Flights were packed, and the airline even managed to minimize the impact of a couple of major national disruptions.
Southwest Air was slowly building back trust with its most-loyal customers and it was investing heavily in people, technology, and equipment to prevent another situation where tens of thousands of people ended up stranded for days.
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The airline came through the busy July 4th weekend with a near-perfect flight record, and Labor Day appeared to go well, too. Chief Executive Bob Jordan was cautiously optimistic during Southwest Airlines' (LUV) -) first-quarter-earnings call.
"We saw a strong rebound in revenue trends in March, resulting in record first-quarter revenues despite the impact of the December disruption. Travel demand remained strong thus far, but we remain mindful of the uncertain economic environment," he said.
The CEO was careful with his words, but he expressed positivity about the months ahead.
"We have tough year-over-year revenue comparisons here in the second quarter with last year's domestic revenue environment getting a boost from international closures," he said "Taking that into consideration, demand, particularly leisure, continues to show strength as we head into the busy summer travel season."
That optimism, however, has not held up, as a new Securities and Exchange Commission filing shows that the airline is facing a number of headwinds. These could be a mixed blessing for passengers.
Image source: Tim Boyle/Getty Images
Southwest faces a capacity problem
In the SEC document, Southwest provided revised guidance, outlining some headwinds facing the company's operations and likely those of JetBlue (JBLU) -), Spirit (SAVE) -) and Frontier. (ULCC) -)
The airline pointed to three problems, one of which is good for passengers. The other two could offset that benefit.
- Capacity is up: In theory, that's good news for passengers as the carrier has more seats to sell.
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Revenue per seat mile is down: The company had expected that decline, but it raised the bottom of the range to down 5% to 7% from down 3% to 7%.
- Costs, both fuel and nonfuel, are higher: Southwest had expected to pay between $2.55 and $2.65 per gallon of fuel. It has revised that number to between $2.70 and $2.80. It had also estimated that nonfuel costs would be flat, and has revised that figure to an increase of 3.5% to 6.5%.
Higher costs often get passed onto passengers, but the airline may not be able to do that if it's struggling to sell seats. Pricing could be further affected if its rivals face the same issue with excess capacity.
In the filing, the airline maintained an optimistic tone.
"While August 2023 close-in leisure bookings were on the lower end of the company's expectations, modestly impacted by seasonal trends, overall leisure demand and yields continue to remain healthy," the airline said.
"Travel demand during Labor Day weekend was strong and produced a record revenue performance for the holiday weekend."
The airline has also not seen the rebound in business travel it (and the entire industry) had hoped for. Southwest said that its performance in those areas was in line with its expectations, without noting that those expectations were low in the first place.
Southwest reports strong operations
After its holiday meltdown, Southwest risked permanently scaring off some of its passengers. It appears to have made strong progress in that area.
"The company’s third-quarter 2023 completion rate of approximately 99%, thus far, is in line with expectations despite a challenging operating environment," the airline said.
"Very strong daily operational performance has, thus far, offset the impact of roughly 1,400 cancellations from extreme weather-related disruptions, including hurricanes Hilary and Idalia, the Maui wildfires, and summer storm activity."
That's good news for the company as passengers make their flight decisions for the 2023 holiday season.
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