Southwest Air narrows loss but cautions on rising fuel prices

Southwest Air narrows loss but cautions on rising fuel prices
Southwest Airlines (LUV) on Thursday posted a narrower-than-expected third-quarter loss as passengers cautiously took to the skies, though it cautioned that higher fuel prices could generate headwinds in the holiday travel season.

The Dallas airline posted an adjusted loss of $135 million (U.S.), or 23 cents a share, vs. an adjusted loss of $1.17 billion, or $1.99 a share, in the year-earlier quarter. Analysts polled by FactSet had been expecting a per-share loss of 27 cents.

Revenue more than doubled to $4.68 billion vs. $1.79 billion. Analysts polled by FactSet had been expecting revenue of $4.6 billion.

Southwest said its third-quarter operating revenue more than doubled [up 161 per cent year-over-year to $4.7 billion but decreased 17 per cent compared with third-quarter 2019 due to the impact of the pandemic.

“Despite the deceleration of traffic in August and September due to surging COVID-19 cases, the third quarter 2021 demand and revenue performance was quite strong and a dramatic improvement from a year ago,” Chief Executive Gary Kelly said in a statement.

July’s revenue and profit performance offered “…a bright and encouraging sign of recovery.”

At the same time, the airline said that “lingering effects” from the deceleration in bookings in third quarter 2021 are estimated to hurt fourth-quarter 2021 operating revenue by some $100 million.

October operating revenue faces two headwinds: a $40 million hit due to the effects of the COVID Delta variant and a $75 million impact from flight cancellations due to “operations challenges.”

Southwest earlier this month was forced to cancel hundreds of scheduled flights amid plans by the airline to enforce a COVID-19 vaccine mandate for all staff.

Swapa, the Southwest Airlines Pilots Association, had said that it planned to take union action and file a temporary restraining order to stop Southwest from complying with the mandate set by President Joe Biden.

However, the pilots group issued a statement saying that it was “aware of operational difficulties” affecting the airline. It denied that its opposition to a vaccine mandate as being the reason for the cancellations.

For the fourth quarter, Southwest said that while it was encouraged with renewed momentum in leisure and business traffic, revenues, and bookings, higher fuel prices could weaken fourth-quarter results, even as they trend better than they did in the third quarter.

Economic fuel costs were $2.04 a gallon in the third quarter vs. $1.23 in the third quarter of 2020. The airline now expects operating revenue to be down 15 per cent to 20 per cent in the fourth quarter, with the load factor — percentage of available seats filled with paying passengers — of between 80 per cent and 85 per cent.
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