Southwest slumps on cost pressures, new jet delays

Bloomberg

Southwest Airlines Co said it’s facing high costs and delays in aircraft deliveries from Boeing Co, tarnishing a quarter in which the carrier topped Wall Street’s profit expectations on rebounding summer travel.
The airline will receive 66 jets this year, down sharply from its prior plan for 114 deliveries, Southwest said in a statement. That puts further pressure on the company as it tries to capitalise on robust demand and recover from a slump early in the pandemic.
“Despite those delays, we are confident about our ability to fly our flight schedules as planned,” CEO Bob Jordan said. “Travel demand surged in the second quarter, and thus far, strong demand trends continue.”
The delivery issue adds to challenges facing US carriers already grappling with flight disruptions, labour shortages and rising costs. Southwest, like its rivals, said economic volatility hasn’t had a major impact on consumers’ willingness to shell out for pricey plane tickets.
The carrier’s results were also hurt by rising non-fuel costs and revenue predictions below expectations, Helane Becker, a Cowen analyst, said in a note. “We expect this to pressure shares as investors grapple with signs of decelerating demand and cost headwinds.”
Flying capacity will be flat in the third quarter compared with 2019 levels, Southwest said, and down about 4% for the full year, consistent with an earlier projection.
Non-fuel costs to fly each seat a mile will rise as much as 15% in the third quarter and as much as 16% for the year because of higher labour costs, benefits and airport expenses.
Southwest’s capacity plans buck a trend among its largest rivals to slow expansion. Airline and airport labour shortages,
air traffic control issues and weather have forced some carriers to park planes and cut flights just as consumer travel demand was rebounding. Carriers including United Airlines Holdings Inc and Delta Air Lines Inc have extended constraints on flying in an effort to reduce delays and cancellations during the rest of 2022.
Southwest is sticking to its flying schedule despite slower aircraft deliveries.