Southwest Airlines reports 46% drop in profits

Southwest Airlines reported its second quarter results, with profits declining 46% for the quarter on a year-over-year basis.  While revenues rose to a record $7.35 billion, a 4.5% increase YoY, unit revenue decreased with capacity growth outstripping demand.  RASM was 15.9 cents this year, down from 16.53 cents last year.  

Net profit at the carrier was $367 million for the quarter, compared to $683 million in 2023.  That will add to pressures for change from an activist investor, Elliot,

just as the FAA is opening an investigation of operations after three recent unsafe descents, a take-off from a closed runway, and a “Dutch roll” incident with a 737MAX.  With calls for management changes, a financial downturn, and operational problems, Southwest is in trouble.  The carrier has now outgrown the competitive financial advantage it once had.

Capacity and right sizing its fleet has come home to roost at Southwest, whose markets would be right sized for the 737 MAX 7.  The carrier has orders for more than 300 of these aircraft, but Boeing has been unable to certify the new model on a timely basis.  This has forced Southwest to take on larger 737 MAX 8 aircraft as it replaces aging 737-700s, resulting in roughly 25% more seats on each aircraft.  Many of Southwest’s markets need the smaller aircraft, resulting in lower fares to fill empty seats and the resultant drop in revenue.