Southwest predicts better results in Q3 after Q2 figures hit by April accident

posted on 27th July 2018 by Justin Burns
Southwest predicts better results in Q3 after Q2 figures hit by April accident

Southwest Airlines’ operating income was $967 million in the second quarter (Q2) of 2018 a 20 per cent fall on Q2 last year with results impacted by the Flight 1380 Boeing 737-700 accident on 17 April which killed one passenger and severely damaged the aircraft.

The carrier’s Q2 net profit was $733 million, down 1.3 per cent from net income of $743 million the 2017 June quarter.

The accident cost Southwest about $100 million in Q2 revenue and spurred inspections of 17,000 fan blades on the company’s CFM56-7B engines and those inspections and a hail storm resulted in the grounding of 17 aircraft causing fleet issues in Q2.

The US airline carried 35.2 million revenue yielding passengers in Q2 up 3.7 per cent on Q2 2017 and the average load factor for the quarter was 84.7 per cent, 0.9 percentage points down on Q2 last year. The average passenger revenue yield per RPM was 15.25 cents, down 2.5 per cent.

Chairman of the board and chief executive officer, Gary Kelly said: “Despite higher fuel prices and the expected effects from the Flight 1380 accident, we delivered solid financial results, including record earnings per share for second quarter 2018.

“I am especially proud of the heroic efforts of our people to address and overcome the challenges resulting from the accident.”

Kelly said the airline expects the revenue impact from this headwind to be temporary and subside in Q3 2018 and is encouraged by the “solid rebound in demand” and it expects an improved performance in the second half of 2018.

He said: “Separately, we deployed additional revenue management tools and techniques during second quarter 2018, and we continue to expect to generate incremental improvements in pre-tax results of $200 million this year from the investment in our new reservation system.

“Our second half 2018 flight schedule is better optimised, and our Rapid Rewards Program and other ancillary products continue to perform very well.”

Kelly said excluding fuel, first half 2018 cost inflation was modest and it is pleased with Q2 2018 cost performance, which came in below expectation, mostly due to timing.

He added: “We expect higher unit costs as we move into second half 2018, due largely to shifting spending from first half 2018. With the completion of major revenue initiatives over the last several years, we will refocus our efforts to control costs and drive efficiency, especially in light of higher fuel prices.

“Our expected year-over-year 2018 available seat mile (ASMs, or capacity) growth remains in the low four per cent range, which is approximately one point lower than our original capacity growth plan, resulting from adjustments made to mitigate higher fuel prices and near-term unit revenue pressures.

“Our suboptimal flight schedule headwinds begin to abate next month and are not expected to have a material impact on fourth quarter 2018. As we look ahead to 2019, Hawaii remains our expansion focus, and our goal is to begin selling tickets later this year.”

During Q2 Southwest received 12 Boeing 737-800s and two 737 Max 8s, bringing the company’s total fleet to 730 aircraft. It expects to the end 2018 with 751 aircraft in its fleet based on the current aircraft delivery schedule.