Southwest Airlines considers ending open seating as loss widens, revenue falls short

By Ciara Linnane and Claudia Assis

Carrier also leaving four airports as it expects to end 2024 with about 2,000 fewer employees

Southwest Airlines Co.'s stock tumbled more than 9% Thursday after the airline posted a wider-than-expected first-quarter loss and revenue that lagged estimates.

Southwest (LUV) Chief Executive Bob Jordan said that the company is committed to a slew of changes, including a potential end to its hallmark open-seating policy, as it seeks to improve its performance.

Eliminating open seating would be a sea change for Southwest, as the airline does not offer assigned or premium seats on their all-Boeing jets.

On a call with analysts following the results, Jordan would only say the company has been studying questions around onboard seating "for a while," given changing customer expectations.

"We are just not ready to tell you exactly what we are studying," he said on the call. "We will be as we move across the summer and head to our investor day in September."

The company is taking other actions to return to profitability, cutting costs and boosting productivity.

That includes exploring adding new red-eye flights to its schedule, Jordan said. Southwest has also exited four airports, and cut down on its flight schedules at airports in Chicago and Atlanta.

The only thing completely off the table, executives said on the call, is charging bag fees.

"Achieving our financial goals is an immediate imperative," Jordan said in a statement accompanying the results.

The planned moves include closing operations on Aug. 4 at Bellingham International Airport in Washington state, Mexico's Cozumel International Airport, Houston's George Bush Intercontinental Airport and Syracuse Hancock International Airport in New York state, Southwest said.

The company is further planning to "significantly" restructure in other markets, mostly by implementing capacity cuts at Hartsfield-Jackson Atlanta International Airport and Chicago O'Hare International Airport.

On the call, Southwest executives said the company will cut capacity at O'Hare by roughly half, depending on the season, and capacity at Hartsfied-Jackson by about 30%.

"We are committed to continued network adjustments to specifically address underperforming markets. We're committed to adjusting our capacity and managing down [capital expenditures]," Jordan said on the call.

Southwest also has had to contend with receiving fewer of the Boeing Co. (BA) jets that it ordered. In turn, it plans to hold on to 14 jets that it had previously slated for retirement.

"The recent news from Boeing regarding further aircraft-delivery delays presents significant challenges for both 2024 and 2025," Jordan said. "We are reacting and replanning quickly to mitigate the operational and financial impacts while maintaining dependable and reliable flight schedules for our customers."

The company is expecting delivery of as many as 20 or as few as eight aircraft in 2024, down from prior expectations of up to 46 deliveries. It also expects to end the year with about 2,000 fewer employees as it limits hiring and offers voluntary time-off programs, he said.

The company had a net loss of $231 million, or 39 cents a share, for the quarter - wider than the loss of $159 million, or 27 cents a share, posted in the year-earlier period.

Adjusted for one-time items, the company's per-share loss came to 36 cents, wider than the 34-cent FactSet consensus.

Revenue rose 10.95% to $6.329 billion but also lagged the $6.420 billion FactSet consensus.

The company is now expecting second-quarter revenue per available seat mile to be down by 1.5% to 3.5%. It expects available seat miles to be up 8% to 9%.

Fuel costs per gallon are expected to range from $2.70 to $2.90 in the second quarter, with the same projection for the full year. The airline's prior guidance for full-year fuel costs was $2.55 to $2.65. In the first quarter, fuel costs averaged $2.92 a gallon.

Full-year revenue growth is expected to approach the high single digits, revised down from a prior goal of double-digit growth due to the Boeing delivery delays.

Costs per available seat mile excluding fuel costs are expected to remain high through the year after rising 5% in the first quarter. For the full year, CASM excluding fuel costs is expected to rise 6.5% to 7.5%.

The company ended the quarter with $10.5 billion in cash and cash equivalents and a fully available revolving credit line totaling $1 billion.

-Ciara Linnane -Claudia Assis

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

04-25-24 1440ET

Copyright (c) 2024 Dow Jones & Company, Inc.