Southwest expects higher costs will keep profits elusive
The bumpy ride isn’t over at Southwest Airlines. The massive flight cancellations that bedeviled the carrier earlier this month are expected to dent its top line, and mounting costs could hurt its bottom line.
The airline said Thursday its October revenue could take a $75 million hit from those cancellations that it blamed at that time on air traffic issues and bad weather. Those cancellations were also partly due to staff shortages, which forced it to rein in its capacity plans.
The carrier had earlier added flights, betting that an easing of health crisis restrictions would boost demand for air travel Southwest now expects capacity will fall about 6% in the first quarter compared to the same period before the health crisis in 2019.
What’s more, costs will likely rise, and that is expected to offset the improvement in travel bookings it has seen since late September. It expects expenses to jump by up to 12% in the current quarter as it boosts staffing, doles out incentive pay for vaccinations, and battles inflation.
The news wasn’t all bad. In the latest quarter, the carrier drastically shrank its loss from a year ago… and it was much smaller than Wall Street expected.
But that wasn’t enough to please investors. Southwest shares fell in early trading Thursday. They have now shed roughly a fifth of its value over the last six months.
