How Did Southwest Perform Operationally In October?
The third quarter results for Southwest and its investors were quite disappointing, given a 3.4% y-o-y drop in revenues and a -5% decline in unit revenues. This was in part attributable to a one-time technology outage episode that ocurred in July, and in part to the continued supply-demand imbalances plaguing the industry as a whole. Further, the company expects the decline to persist, with unit revenues down 4%-5% in the final quarter of the year, due to the timings of the Christmas holiday and regional price wars. Even in such a competitive scenario, and despite being under pressure from its investors, the company has decided to not charge any baggage fee to recoup these losses. This shows how highly the company values the goodwill it has created amongst its customers.
Keeping with its guidance of 5%-6% expansion in capacity in the year, Southwest’s available seat miles in the month of October 2016 were up 5.4%. Including this month, so far in the year capacity is up as much as 5.9%. The occupancy rate deteriorated slightly on an annual basis to 85.7%, but was up 40 bps for the full year. In terms of passenger traffic, the growth was 5.2%. The carrier remains hopeful to turn its revenues around in January due to impressive bookings it has received for the month and reduced capacity in 2017. However, the recently ratified labor contract will increase the company’s operating costs by 3.5% in Q4’16. Consequently, we may see some adverse affect on the bottom line.
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Have more questions about Southwest Airlines (NYSE:LUV)? See the links below:
- Southwest Faces Market Heat As It Reports Disappointing Q3’16 Results; Future Guidance Bleak
- Southwest Q3’16 Earnings Preview: Labor Agreement, Rising Oil Prices To Weigh On Earnings
- How Did Southwest Airlines Perform Operationally In September?
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Southwest Airlines
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