Southwest Airlines Faces Rising Costs and Capacity Challenges

Southwest Airlines has forecasted a potential increase of up to 13% in nonfuel costs for the third quarter of 2024, as the airline grapples with a decline in unit revenue, which could fall by as much as 2% compared to the previous year. CEO Bob Jordan highlighted that the current domestic market is experiencing an oversupply of capacity, with a 6% increase noted in the second quarter. The airline is actively working to reduce this capacity to a more manageable 2% in the upcoming quarter. Despite a record second-quarter revenue of $7.35 billion, representing a 4.5% increase from last year, Southwest's profits plummeted over 46% to $367 million, or 58 cents per share. CFO Tammy Romo acknowledged the need for improvements within the company, emphasizing that management is taking responsibility for addressing these challenges. In addition to financial pressures, Southwest is in discussions with Boeing regarding compensation due to delays in aircraft deliveries, which have been affected by ongoing safety and manufacturing issues. The airline is undergoing significant changes, prompted by investor pressure, including a nearly $2 billion stake from Elliott Investment Management, which has called for leadership changes. To adapt to the evolving market, Southwest announced the discontinuation of its open seating policy and plans to introduce extra legroom seats and overnight flights, marking the most substantial shifts in its business model in over 50 years. Meanwhile, competitors Delta Air Lines and United Airlines anticipate a moderation in U.S. capacity, which may lead to increased fares in the near future.