Southwest Airlines Co. (NYSE: LUV) today reported its third quarter 2023 financial results. The quarter saw strong leisure travel demand with the expected seasonal dip in close-in bookings toward the quarter’s end.
Notable was the operating revenue high of $6.5 billion. We take a close look at the airline’s Q3 performance here.
Revenues and Outlook
Southwest Airlines Co. reported outstanding third-quarter results, with operating revenues reaching an all-time high of $6.5 billion. This impressive figure reflects a remarkable 4.9 percent increase compared to the previous year.
However, the revenue per available seat mile (RASM) experienced a slight decrease of 6.8 percent, mainly due to lower-than-expected close-in bookings.
The third quarter of 2023 witnessed robust leisure demand, especially during July and the Labor Day holiday, setting new records for quarterly ancillary revenue and loyalty program revenue.
Although August and September saw a dip in close-in bookings, influenced by seasonal trends, overall demand remained steady throughout the quarter.
The managed business revenues for the same period performed as anticipated, further solidifying the company’s position in the business travel market.
Moving into the fourth quarter of 2023, the demand for travel continues to stay consistent. Bookings for the holiday travel periods are already promising, and while leisure demand remains healthy, it’s returning to its usual seasonal patterns.
Business trends also continue to hold steady, indicating a balanced outlook. Based on current trends, Southwest Airlines Co. is gearing up for a record fourth-quarter operating revenue driven by an increase in passenger numbers.
However, it’s important to note that the company expects a decline in RASM in the fourth quarter of 2023, ranging from 9 percent to 11 percent year-over-year.
This decline includes factors like higher-than-seasonal ASM (available seat mile) growth, adjustments in capacity, and market trends not ideally aligned with current business travel patterns.
The company is actively addressing these challenges in its 2024 network plan by optimizing capacity and schedules to better match demand.
Capacity and Fleet
The airline’s flight schedule is set for sale until August 4, 2024. In light of their partnership with Boeing and a meticulous approach to their 2024 plan, Southwest Airlines Co. has recalibrated its growth projections for the first quarter and full year of 2024 to align with current demand trends.
The new expectation is a 10 percent to 12 percent year-over-year increase in capacity for the first quarter of 2024, compared to the earlier projection of 14 percent to 16 percent.
This shift will result in a decrease in nominal ASMs when compared to the fourth quarter of 2023.
The company also expects full-year 2024 capacity to grow in the range of 6 percent to 8 percent year-over-year. It is evident that the airline is planning for a consistent but slower capacity growth throughout 2024, with the aim of achieving mid-single-digit ASM growth in the second half of the year.
During the third quarter of 2023, Southwest Airlines Co. received 18 -8 aircraft while retiring four -700 aircraft, concluding the quarter with a fleet of 817 aircraft.
Thanks to their new agreement with Boeing, they now anticipate around 85 -8 aircraft deliveries in 2023, compared to the previous plan of 70.
This increase in deliveries will prompt the retirement of approximately 41 -700 aircraft in 2023, compared to the earlier projection of 26. Consequently, the company’s fleet is expected to end the year with 814 aircraft.
In terms of capital expenditures, the third quarter of 2023 saw a total of $842 million, primarily driven by aircraft-related capital spending, technology enhancements, facility improvements, and operational investments.
For the entire year of 2023, Southwest Airlines Co. expects capital spending to hover around $3.5 billion.
This includes roughly $2.3 billion in aircraft capital spending, which accounts for the anticipated 85 -8 aircraft deliveries in 2023, and $1.2 billion in non-aircraft capital spending. This budget also covers operational investments linked to the airline’s winter operations plan.
On average, the company estimates its annual capital spending to be approximately $4 billion for the five years spanning from 2023 to 2027.
Fleet Modernization with Boeing
This week, Southwest Airlines Co. made a significant move by entering into a Supplemental Agreement with Boeing, extending its order book for -7 and -8 aircraft to 2031.
This extension grants the airline more flexibility in line with their growth plans and fleet modernization. The new order book is expected to reshape the future of their fleet and further contribute to their success.
Did you know AviationSource has two newsletters? One covers the general news and analysis of the industry as a whole, and the other to do with emergencies that take place throughout the year! To subscribe to our General News Newsletter, CLICK HERE! To subscribe to our Emergencies, Accidents & Incidents Newsletter, CLICK HERE!