Southwest Airlines reported record revenues in Q3 and delivered a $193 million profit. But the carrier says its fleet and network are still off-balance, with its 2024 growth outlook now reduced.
Just a couple weeks ago Southwest adjusted its loyalty program, making it easier for frequent fliers to earn status and additional benefits. That move raised the question of whether the carrier was having trouble backfilling reduced business travel volume with a more leisure-focused travel segment. As part of its earnings release Southwest addressed this, at least in part. “Unit revenue pressure” a/k/a RASM, the company says, “is also driven by higher-than-normal investment in development markets and schedules that are not ideally matched to current business travel trends.”
Business travel is “stable” and CEO Bob Jordan says managed business continues to “perform largely as expected—as we continue to gain initiative-driven market share in the corporate travel space.”
Capacity is up significantly in 2023 v 2022. And it will continue to grow in 2024, though now at a slower pace than previously guided. Much of that will come in establishing new markets which require additional time to generate profit.
Map generated by the Great Circle Mapper - copyright © Karl L. Swartz.
The carrier will launch six new routes from Orlando to the Caribbean and Latin America in Summer 2024, for example. These are leisure or visiting friends and relatives routes, not business markets. And they are launching against competition in most cases; JetBlue currently flies four of the routes and Bahamasair flies a fifth. These routes also come at the expense of service from Fort Lauderdale. The carrier expects better feed, but has to contend with a less mature local demand profile.
Slipping the order book later
Fleet growth and refresh is also slowing in the near-term compared to prior plans. The carrier will take more 737 MAX 8 aircraft from Boeing this year than previously expected (85 v 70). But the prior plans called for a total of 136 aircraft deliveries in 2023, including the MAX 7. That is now joining the fleet no earlier than 2024. The total order book for 2023-2026 now calls for 16 fewer firm deliveries than before.
Longer term, however, the outlook is stronger. From 2027-2031 the carrier anticipates delivery of 162 MAX 7 and 130 MAX 8 aircraft. It also holds 158 options for additional deliveries in that timeframe. This represents a 111-aircraft increase of firm order commitments for the five year period, plus 105 additional options compared to the prior order book.
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