Southwest Airlines: ‘Healthy’ Demand Alone Can’t Boost Profits
Photo Credit: Southwest planes lined up in Pittsburgh. Flickr / Pittsburgh International Airport
Skift Take
Southwest is flying too much capacity for the current level of travel demand in the U.S. Management knows it and is under increasing pressure to slow things down and boost profits.
Southwest Airlines executives want investors to be clear about big thing: U.S. travel demand is "healthy." Southwest leaders repeated the word several times during the third-quarter earnings call Thursday.
Healthy is OK in a normal market. It means airlines can fill their seats.
But in a market with rapidly growing supply — with many more airplane seats — steady demand is not enough to boost profits. Add in rising labor costs and the pressure gets worse.
That was clear in Southwest's results. It was profitable, but barely. Its operating profit margin excluding items was just 3.4%. Capacity grew 12.5% from a year ago, but passenger traffic grew only about half as much. That contributed a 6.4% drop in passenger unit revenue.
“Travel patterns are changing," said CEO Robert Jordan. "While it's still strong, they're changing for leisure, [and] they're also changing for business — we're seeing gains, but that last 10 to 15 points of busin
