Southwest Airlines said Thursday it plans to slow its capacity growth next year, citing moderating travel demand as booking patterns shift back to pre-pandemic norms.
Southwest will expand its flying between 10% and 12% in the first quarter of 2024 from a year earlier, down from a previous forecast of as much as 16% growth, Southwest said in an earnings release. It expects to grow between 6% and 8% for the full year 2024, it said.
Airlines have expanded their flying this year, while travelers have returned to more traditional booking, traveling during peak vacation periods or holidays. That capacity expansion has driven airfare lower.
Last year, executives cited high amounts of traditionally off-peak travel coupled with a shortage of aircraft and other challenges that kept fares high.
Here’s how Southwest performed in the third quarter compared with Wall Street expectations according to consensus estimates from LSEG, formerly known as Refinitiv:
- Adjusted earnings per share: 38 cents vs. an expected 38 cents
- Total revenue: $6.53 billion vs. an expected $6.57 billion
Southwest forecast unit revenue, the amount an airline brings in for each seat it flies a mile, would drop between 9% and 11% from a year earlier in the fourth quarter, with capacity up about 21%.
“As we move into 2024, we are slowing our [available seat mile growth] rate to absorb current capacity, mature development markets, and optimize schedules to current travel patterns,” CEO Bob Jordan said in a quarterly earnings release.
Southwest’s net income in the third quarter dropped 30% from a year earlier to $193 million, or 31 cents per share, while revenue advanced 4.9% to $6.53 billion. Adjusting for the impact of labor contract adjustments and other one-time items, the company earned 38 cents per share.
Ultra-low-cost carrier Spirit Airlines on Thursday also said it was reviewing its growth plans after posting a third-quarter loss of $157.6 million, from a $36.4 million loss last year. The company forecast negative margins in the last three months of the year, citing weaker demand even for year-end holidays.
“Softer demand for our product and discounted fares in our markets led to a disappointing outcome for the third quarter 2023,” CEO Ted Christie said in an earnings release. “We continue to see discounted fares for travel booked through the pre-Thanksgiving period.”
(JetBlue Airways is trying to acquire Spirit, though the Justice Department has sued to block the deal. The trial is scheduled to start next week.)
Fellow discounter Frontier Airlines swung to a $32 million loss in the third quarter from a $31 million profit during the same period last year. That carrier also forecast negative margins for the fourth quarter.
Southwest and Spirit shares were each down more than 4% in premarket trading, while Frontier was off 1%.