Southwest Airlines announced on Wednesday, June 26, a reduction to its revenue projection for the second quarter, stating that customers' booking habits had changed.
Southwest Expects Up to 4.5% Drop in Revenue per Seat Mile
Previously, Southwest had predicted a decrease of 1.5% to 3.5% in revenue per available seat mile (RASM). However, the airline now predicts a reduction of 4% to 4.5% compared to last year in the second quarter, as reported by CNBC.
The company also announced that contrary to prior expectations, its unit expenditures, excluding gasoline, will increase by up to 7.5% compared to last year.
Instead of the flat growth in flight frequency, it had anticipated, it predicted capacity would increase by as much as 9%.
Despite this, Southwest is projecting record operating revenue for the second quarter.
In pre-market trading, Southwest shares dropped more than 4% after the announcement. It recovered marginally by afternoon and was trading at $28.24, according to The Street.
Airlines Losing Money Owing to Rising Costs
Record numbers of people have flown through airports, but airlines are seeing a decline in profit due to increased expenses and capacity expansion.
In a filing, Southwest Airlines said that the decline in its RASMprojections was caused by the challenges it experienced in adjusting its revenue management strategies to the current booking trends in the ever-changing market.
On the other hand, hedge fund Elliott Management has been putting pressure on Southwest, demanding the resignations of CEO Bob Jordan and Chairman Gary Kelly. In a statement on Wednesday, Elliott said that the revised forecast further proves that Southwest needs new leadership immediately.
Despite the call for executive resignation, the carrier has expressed confidence in its leadership and is contemplating revenue strategies like seating assignments or premium seats, which would drastically modify the company's straightforward economic model.
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