Southwest Airlines Reports Record Income but Warns of Rising Expenses

Southwest Airlines Reports Record Income but Warns of Rising Expenses

Airlines 2022-08-09
Southwest Airlines' second-quarter profit increased to $760 million on record revenue, but the airline issued a warning that reduced productivity and rising expenses are expected to remain in the year's second half.

In midday trade on Thursday, shares dropped 7%.

This year, air travel has recovered from pandemic lows, and Southwest's strength in domestic leisure travel is a great example. The Dallas carrier reported that third-quarter ticket demand remained steady.

Costs, meanwhile, are also rapidly growing.

Even though the airline hedges, or makes investments to offset growing energy prices, Southwest's fuel spending more than doubled, increasing by more than $800 million from a year ago. Spending on salaries and benefits jumped by 21%, or nearly $400 million, over a year.

This summer, there have been a lot of canceled and delayed flights for Southwest and other airlines, which raises prices.

In a prepared statement, CEO Robert Jordan commented that "as anticipated, we suffered inflationary pressures and headwinds from operating at suboptimal productivity levels in the second quarter, which we predict to persist in the second half of 2022."

Nevertheless, the airline continues to anticipate the remaining months of the year to be "solidly profitable," according to Jordan, "barring significant unexpected occurrences."

In May, Southwest resumed staffing levels it hadn't attained since the pandemic forced it and other airlines to persuade hundreds of employees to resign or take long-term leaves. Southwest has started hiring pilots and other employees.

The airline stated that while it anticipates adding 10,000 employees this year, hiring will "moderate" in the second half of the year. Southwest anticipates non-fuel costs to increase by 12 to 15 percent per mile in the third quarter, even with decreased hiring.

Following major disruptions this spring, Southwest reduced the number of flights in their summer schedule. It claimed to have reintroduced a few popular short routes for business travelers.

Southwest's second-quarter profit was more than the $741 million it made in the same time of 2019, before the pandemic, and was up from the $338 million it made in the same period a year earlier.

The airline earned $1.30 per share in adjusted earnings. Revenue increased by 68% to $6.73 billion.

According to FactSet, analysts predicted earnings of $1.17 per share on revenue of $6.69 billion.

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