Southwest Airlines Co. is slowing growth plans for next year to better match moderating travel demand and warned that inflation and higher labor expenses are putting pressure on its costs.
Capacity will now increase 10% to 12% in 2024’s first quarter, compared with prior plans for as much as 16%, the airline said in a statement Thursday as it reported third-quarter financial results. Growth will slow sequentially in each quarter of 2024, and be up no more than 8% for the full year.
The carrier also unveiled a reshuffled order book with Boeing Co. that slows expected deliveries of some aircraft in the near term, while increasing the number of planes it takes in later years. The airline will now receive 90 737 aircraft each year from 2027 through 2031, compared with between 30 and 55 each year under previous plans.
The decision to trim expansion next year shows how Southwest is navigating a difficult market as budget airlines in the US resort to fare sales to counter growth that has outpaced demand. A slowdown in close-in leisure bookings that began in August at Southwest extended into September, the carrier said, despite Labor Day demand that produced record revenue for the holiday weekend.
Demand this quarter “remains stable” while bookings for the upcoming winter holidays are “strong” so far, the company said. The carrier plans to increase capacity about 21% this quarter compared with 2022, and as much as 15% for the year.
Adjusted third-quarter profit was 38 cents a share, just shy of the 39-cent average of analyst estimates compiled by Bloomberg. Revenue rose to $6.53 billion, while expectations were for $6.56 billion.
Southwest’s shares fell 5% before the start of regular trading in New York. The stock declined 30% this year through Wednesday, the worst performance in a Standard & Poor’s 500 Index of the five largest US airlines.
Revenue for each seat flown a mile will fall as much as 11% year over year in the fourth quarter. Costs on the same basis also will decline up to 19%, primarily because they compare to the 2022 period in which Southwest suffered widespread flight disruptions.