Southwest Airlines Is in Trouble, New Data Shows—Here's Why
On the other hand, customers may benefit from these promos and sales.
Summer travel was a doozy this year—and with fall quickly approaching, many of us are hoping for shorter security lines and diminished crowds when we do have to get from point A to point B. But while travelers are looking forward to this reprieve, the aviation industry, including Southwest Airlines, may not be faring so well in the coming months. Read on to find out why Southwest is in trouble, according to new data.
Southwest reported some concerning trends.
In the filing, the airline noted that capacity is up, but revenue per seat mile is down. On top of that, fuel costs and costs in general are up. While Southwest remains optimistic, the airline lowered its expectations for the current financial quarter because of anticipated higher costs. Southwest expects revenue to drop between 5 to 7 percent when compared with the same period last year, CNBC reported.
"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 carrier said in the filing. "Travel demand during Labor Day weekend was strong and produced a record revenue performance for the holiday weekend."
But as View From the Wing points out, it would have been pretty surprising if Labor Day Weekend didn't see record-breaking numbers thanks to ongoing inflation.
Business travel isn't looking great either.
View From the Wing also points to decreased performance in terms of business travel. In the filing, Southwest wrote that trends "continue to perform in line with expectations, and the Company continues to expect overall corporate travel to have a modest underlying year-over-year sequential trend improvement in third quarter 2023."
However, View From the Wing notes that while business travel may be meeting current expectations, these expectations were already pretty low in light of the evolving business world. It's more difficult to schedule trips when not everyone is back in the office every day, and since the COVID-19 pandemic, companies have also learned that travel isn't essential in every situation.
Southwest isn't alone.
According to CNBC, fuel and labor are the biggest costs for airlines—and jet fuel in major cities like Chicago, Houston, Los Angeles, and New York is up over 30 percent since July 5.
For fuel, specifically, Southwest estimated that prices would climb from $2.70 to $2.80 this quarter, which is an increase from its previous estimate that it would go from $2.55 to $2.65.
Of course, it's not the only airline that expects fuel prices to impact profitability. Alaska Airlines anticipates pricier fuel will affect its pretax margin (earnings calculated after operating and non-operating expenses have been deducted, but not taxes), CNBC reported.
And whileUnited Airlines is maintaining the same revenue outlook, the carrier also expects fuel prices to reach as high as $3.05 per gallon (having previously estimated no higher than $2.80 in July).
Airlines' quarterly reports will be released in October, per CNBC.
This may actually be good for customers.
Although airlines may fret about margins and profitability, this situation benefits customers in some ways. Companies often try to pass some higher costs along to customers; however, they need to sell tickets to do so. And if the post-pandemic travel surge has truly peaked, airlines will need to do more to entice customers to fly with them.
According to View From the Wing, Southwest has been showing its hand by offering multiple promotions and deals. The airline is holding a fall sale and offering a promo to accelerate the process of earning a coveted Companion Pass—which allows a second person to travel with you for free, just paying taxes. Last month, Southwest also tried to boost bookings by offering a short-term Companion Pass as a reward.
"They wouldn't be doing this unless they were seeing weakness," View From the Wing reported.