Southwest Airlines Shows Signs of Recovery

Investing.com — Southwest Airlines (NYSE:LUV) reported that travel demand has been "healthy" this quarter, with strong holiday season bookings indicating momentum for the budget US carrier.

Dallas-based Southwest, previously known for 47 consecutive years of profit, faced challenges in recovering from the COVID-19 pandemic, even as the airline industry experienced a surge in travel activity. Passenger volumes have remained under pre-pandemic levels, compounded by aircraft delivery delays from Boeing (NYSE:BA). The company has downgraded its outlook at least eight times in the past 20 months.

In its earnings release, Southwest highlighted the resilience of the leisure travel market, predicting a unit revenue increase of 3.5% to 5.5% in the fourth quarter. This includes a slight impact from flight cancellations resulting from Hurricane Milton, which recently affected the US Southeast.

The airline flagged ongoing "manufacturing challenges" at Boeing, expressing uncertainty regarding the delivery of about 20 of Boeing’s popular 737-8 jets in 2024 due to a workers' strike on the US West Coast leading to delivery delays.

Additionally, Southwest reduced its capital expenditures forecast to $2.1 billion from a previous $2.5 billion, attributing this change to anticipated delays in future aircraft deliveries, extending potentially into 2025. Ongoing discussions with Boeing were also mentioned.

For the third quarter, Southwest’s revenue per available seat mile—an important pricing metric—increased by 2.8%, aligning with predictions made in September. To mitigate summer’s oversupply of seats, major airlines, including Southwest, have worked to adjust fares.

Total operating revenue rose by 5.3% year-over-year to $6.87 billion, exceeding estimates of $6.81 billion, with adjusted net income at $89 million, despite a 63% decrease from the previous year, still surpassing Wall Street expectations.

CEO Bob Jordan remarked, "We are laser-focused on delivering our tactical and strategic initiatives and restoring strong financial performance. We are committed to executing our plan and reporting on our progress."

Jordan faces mounting pressure to restore long-term profitability, especially with a potential proxy battle against activist investor Elliott Investment Management looming. Elliott previously nominated eight directors to Southwest's board and has called a special shareholders meeting for December, citing "disappointing" financial returns.

However, according to Bloomberg News, a settlement between Southwest and Elliott may be on the horizon to avoid a board battle.

Southwest's shares rose more than 3% in premarket trading on Thursday.