Southwest Airlines says a key revenue ratio will be weaker than expected in the second quarter because of changes in how consumers book travel
DALLAS — Southwest Airlines, already under pressure from a hedge fund for disappointing financial results, said Wednesday that a key revenue ratio will be weaker than expected because of changes in how consumers book travel.
The airline said it still expects second-quarter revenue to hit a record.
However, Southwest said, revenue for each seat flown one mile – a closely watched measure of pricing power – will fall by 4% to 4.5% compared with the same quarter last year. In April, the airline said the decline would be 1.5% to 3.5%.
Costs per mile will rise by 6.5% to 7.5% compared with a year ago, said the airline, which is dealing with rising labor costs.
The Dallas-based carrier said the revenue per mile outlook is worsening mostly due to “complexities” in adapting its pricing to “current booking patterns in this dynamic environment.”
Travel is booming. Airlines expect a record number of passengers this summer, but they have undercut their pricing power by adding more flights and seats. Southwest still plans to increase flying by 8% to 9% over the second quarter of last year.
After losing $231 million in the first quarter, Southwest announced it will end service at four airports and shrink its work force by 2,000 people this year.
This month, hedge fund Elliott Investment Management bought a $1.9 billion stake in Southwest and called for the ouster of CEO Robert Jordan and former CEO and current Chairman Gary Kelly, saying they had failed to modernize the airline’s technology and strategy to keep up with changes in travel.
Jordan says he is not resigning, and he promises to unveil a plan to boost profit during an investor day in September.
Elliott said Wednesday marked the eighth time Southwest had lowered financial guidance in 18 months.
“Southwest’s industry-trailing revenue performance is clearly continuing along the same disappointing trend line, despite management’s repeated promises for improvement,” two of the firm’s executives said in a statement. “Southwest is led by a team that has proven unable to adapt to the modern airline industry.”
Southwest shares fell more than 4% Wednesday morning before recovering to close down a fraction of 1%. Shares are down about 15% in the past year, while the S&P 500 index is up 28%.