In This Story
Southwest Airlines dropped its expectations for the second quarter as it struggles to manage its revenues amid changing flyer preferences.
The company expects revenue per available seat mile (RASM) to decline by about 4-4.5% on an annual basis, it said early Wednesday. It had previously expected the metric to decline by 1.5-3.5%. RASM is a measure of the total revenue from each seat flown one mile, regardless of if it’s empty or full. It’s widely used by airlines because it includes other sources of revenue aside from ticket sales, like baggage fees and in-flight purchases.
Southwest said the change in guidance is “driven primarily by complexities in adapting its revenue management to current booking patterns in this dynamic environment.”
Despite these lowered expectations, however, Southwest said it still expects to reach an all-time quarterly record for operating revenue this quarter. Southwest stock dropped almost 4% in pre-market trading Wednesday.
The company said it’s “intensely focused on improving its financial results.” After reporting a $231 million loss in the first quarter of the year, the Dallas-based carrier is hoping for a turnaround.
It took immediate action to help remedy its balance sheet, including layoffs and eliminating service to handful of airports. Southwest said it expects to end this year with 2,000 fewer employees than it began the year with.
During the same quarter, the company’s revenue rose to $6.33 billion — a company record for the quarter. But it fell short of Wall Street’s forecasts, and failed to keep up with rising labor costs.
Southwest also suffered a hit from delays at Boeing, which has slowed down production of new airplanes as it focuses on quality control issues. It’s expecting just 20 Boeing 737 Max 8 jets this year, even as the carrier retires 35 other aircraft — well below the 46 new planes the company had previously expected to receive, and the 49 it had planned to retire.
Earlier this month, Elliott Investment Management bought a $2 billion stake in the airline, making the activist investor one of the carrier’s largest shareholders. Elliott will likely push the company to shake up some of its business practices, including potential changes to its C-suite, in an effort to get its performance off the ground.