Southwest Airlines is the latest US carrier to raise fourth-quarter financial expectations thanks in part to the early returns of a sweeping plan to overhaul its business model.
Chief executive Bob Jordan said during Goldman Sachs’ industrials and materials conference on 5 December that Southwest’s more positive outlook is also based on a backdrop of strong demand for holiday travel and reduced passenger capacity throughout the USA.
“The holidays are coming in very strong,” he says. “I think the main thing is the tactical initiatives that we put into place to work the network, really work on the things that we are doing to mature the revenue-management system.”
Southwest now expects revenue per available seat mile to rise 5.5-7% year on year, versus its previous forecast of a 3.5-5.5% increase.
The carrier also expects fourth-quarter passenger capacity, as measured in available seat miles, to be down 4% relative to the October-December period of 2023.
Southwest’s end-of-year update mirrors that of leisure-focused competitor JetBlue Airways, which issued a brighter fourth-quarter outlook on 4 December. New York-based JetBlue also cites a strong demand environment and a financial turnaround plan that may be beginning to bear fruit.
Several US carriers are trimming their networks and introducing new seating options amid a broad shift toward higher-paying consumers.
Southwest says its “tactical actions” – including reducing passenger capacity, reworking its network and adopting new revenue-management strategies – are behind the more-optimistic fourth-quarter expectations.
”The improvement… is driven by the combination of better-than-expected leisure travel demand and faster-than-expected benefits from actions taken to mature the company’s revenue management techniques and better optimise the booking curve,” Southwest says.
Specifically, Jordan Southwest has been focusing on boosting yields.
”Our flights are very full; they go out 90% or more full,” Jordan says. “You have to make sure you leave enough seats because demand is going to come in late, and if you don’t know the booking curve then you can fill those seats too quickly and not have enough to sell at the tail end.
“There’s been a lot of work to rework and refine the booking curves so that we have basically a lot of really good seats left to sell late into the holiday period.”
The Dallas-headquartered carrier expects the positive momentum to carry into 2025, which Southwest says supports the premise of its “Southwest. Even Better” plan to reverse a trend of poor financial performances. That plan will see the airline abandon its signature “open” seating system in favour of assigned seats and introduce multi-class aircraft cabins.
