Southwest Airlines Co. reported a third-quarter profit greater than Wall Street expected as business sales strengthened, even as the carrier warned that cost pressures will extend into next year.
Adjusted earnings were 50 cents a share in the period, the company said Thursday in a statement, compared with the 44-cent average from analyst estimates compiled by Bloomberg. Revenue of $6.22 billion was essentially in line with analysts’ projections.
Southwest historically has counted on having lower operating costs so it can attract passengers through cheaper fares. It’s had help offsetting rising expenses from strong travel demand that’s allowed carriers to boost ticket prices. Southwest’s average fare climbed 13% in the quarter from a year ago.
The shares rose 4.8% at 9:37 a.m. in New York. Southwest declined 20% this year through Wednesday’s close.
Hurricane Ian reduced revenue $18 million in the third quarter and will have a $10 million impact in the fourth, as flights at heavily damaged Fort Myers, Florida, remain lower through at least the end of this year.
The Dallas-based company reiterated that it will report a fourth-quarter profit, without providing specifics. Its outlook was more muted than those from larger United Airlines Holdings Inc. and Delta Air Lines Inc., which forecast fourth-quarter profits well above Wall Street expectations.
‘Cost Headwinds’
Non-fuel costs to fly each seat a mile, an industry gauge of efficiency, will be as much as 18% above 2019 levels in the fourth quarter, Southwest said. Unit expenses will be 14% to 15% higher for the full year, narrowing an earlier range of up 12% to 16%, Southwest said.
Costs will increase as much as 2% in the first half of 2023 over this year, but will shift to a decline in the low-to-mid single digits in 2023’s second half, Southwest said.
“Fleet utilization is expected to be limited by pilot staffing constraints for the majority of 2023, resulting in continued cost headwinds,” Southwest said in the statement.
Flying capacity for 2022 will be 4.5% below 2019 levels, Southwest said, compared with an earlier outlook for about 4% less.
Southwest said Boeing likely won’t make all of its scheduled aircraft deliveries this year as the planemaker struggles with supply-chain disruptions and delays in certification for the 737 Max 7. It also converted 17 firm 2023 orders for the Max 7 to the Max 8 variant. Boeing on Wednesday pared its 737 delivery forecast for this year and said it could choose to cancel the Max-7 and -10 variants if an upcoming government certification deadline isn’t extended.
