Southwest Airlines Profit Drops 46% Amid Revenue Pressure

Southwest Airlines has forecasted a potential increase of up to 13% in nonfuel costs for the third quarter of 2024, alongside a possible decline in unit revenue 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 sustainable 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 addressing these challenges head-on. The airline is also seeking compensation from Boeing due to delays in aircraft deliveries, which have been impacted by ongoing safety and manufacturing issues. In response to investor pressure, particularly from Elliott Investment Management, which recently acquired a nearly $2 billion stake, Southwest is undergoing significant changes. The airline announced the discontinuation of its open seating policy and plans to introduce extra legroom seats and overnight flights, marking a major shift in its operational model. Jordan noted that the airline's strategy of selling too many seats at lower prices during the peak summer season has resulted in fewer high-priced seats available later in the booking process. Meanwhile, competitors Delta Air Lines and United Airlines anticipate a moderation in U.S. capacity starting in August, which could lead to increased fares.