Southwest reports Q2 losses, shaky outlook for Q3 

Southwest Airlines reported second-quarter earnings were down 10% to $683 million as labor costs soared, offsetting record revenue at the start of the peak summer travel season, according to the Associated Press.

The airline also warned Thursday that a key revenue ratio will drop, and nonfuel costs will rise in the third quarter.

The shares fell nearly 9% to close at $33.02, the stocks’ worst one-day percentage decline since June 2020, shortly after the COVID-19 pandemic crippled air travel.

Southwest said that revenue for every seat flown one mile — a closely watched ratio in the airline business — fell 8.3% in the second quarter and will drop by between 3% and 7% in the third quarter, compared with the same periods last year.

A report earlier this week from Alaska Airlines fanned worries that demand for air travel — especially within the United States — might finally be cooling after recovering strongly from the pandemic.

The average one-way fare on Southwest dropped nearly 3% compared with last summer, to $179.44; however, that fare actually rose 2% after excluding the revenue Southwest recognized last year from unused vouchers.

Southwest is locked in drawn-out negotiations with pilots and flight attendants, who have not received pay raises in several years. Unions are aiming to match higher wages won by counterparts at other major U.S. airlines, including up to 40% more pay over four years at United.

Southwest said it still expects to hit its target of adding 1,700 net pilot jobs this year.

Southwest’s profit fell from $760 million a year earlier. Excluding special items, earnings per share were $1.09, matching the mean forecast in a FactSet survey of analysts. Revenue rose 5% to a quarterly record of $7.04 billion, topping the $6.98 billion prediction of analysts.

Southwest’s labor costs rose 25.5% from a year earlier, an increase of more than $500 million, and the airline said third-quarter nonfuel costs would rise by 3.5% to 6.5% for each seat flown one mile, mostly in anticipation of higher wages.

Southwest Airlines Co. spent 14% less on fuel than a year earlier, a savings of more than $200 million, because of lower prices.