Southwest Airlines earnings hit by weak US travel demand

Reuters

3 days ago

CHICAGO, July 23 (Reuters) - Southwest Airlines (LUV.N), opens new tab reported lower-than-expected quarterly profit and revenue on Wednesday, hurt by tepid demand from U.S. consumers for travel.
Lingering uncertainty about the broader economy due to President Donald Trump's trade war and rising living costs has hurt carriers that primarily service the U.S. domestic market and price-sensitive customers. To stimulate demand, they have been leaning on fare discounts.
The Texas-based airline said domestic leisure travel demand stabilized after a slump in March and April and was showing signs of improvement.
But underscoring the uncertainty, it forecast its unit revenue, or revenue per seat, in the third quarter to range from down 2% to up 2% from a year ago.
For the second quarter, Southwest reported an adjusted profit per share of 43 cents, compared with analysts' average expectations of 51 cents, according to data compiled by LSEG.
It reported operating revenue of $7.24 billion in the quarter, compared with $7.29 billion expected by analysts.
Like most U.S. airlines, Southwest pulled its full-year financial forecast in April as the trade war made it difficult to project its business.
On Wednesday, the company provided a new target for 2025 of $600 million to $800 million in earnings before interest and taxes. That compares with its previous forecast of $1.7 billion.
Southwest has been struggling to find its footing after the COVID-19 pandemic. Its lackluster earnings have fueled pressure to revamp its business model.
In the second quarter, it began charging customers for checked bags, ending a unique free policy. It also rolled out a new basic economy fare.
The company said the bag fee revenue thus far exceeded its expectations. But sales of basic economy fares on its website suffered a hit after their launch in May, hurting its unit revenue in the second quarter.
Southwest expects an impact on its third-quarter unit revenue as well. Meanwhile, its non-fuel operating costs were estimated to increase by as much as 5.5% in the third quarter from a year ago.
Summer, typically the peak money-making season for airlines, is falling short this year as sluggish demand for standard economy seats forces carriers to cut fares, undermining their pricing power.
Delta Air Lines (DAL.N), opens new tab and United Airlines (UAL.O), opens new tab have seen strong revenue gains from premium cabins, buoyed by affluent travelers willing to pay for upgrades.
By contrast, low-fare
carriers such as Southwest
are under pressure to maintain profitability as price-sensitive travelers remain cautious with discretionary spending.
The airline, however, held out hopes for the second half of the year to be stronger, citing stronger demand as well as the industry's efforts to limit seat supply and fend off discounting pressure.
"While early, recent industry demand shows signs of improvement off of depressed second quarter 2025 levels," the company said.
Other airlines including United and Alaska(ALK.N), opens new tab have also reported a recovery in bookings in recent weeks. But the industry's pricing power remains weak, particularly in the domestic market.
Southwest, the largest U.S. domestic carrier, saw a 3% year-on-year decline in its unit revenue in the second quarter. Its overall passenger revenue was also down from a year ago, with a sharp drop in passenger volumes.
The company said its capacity, or seats on its flights, was expected to be flat in the third quarter from a year ago.
The company will discuss its earnings with analysts on Thursday.