Southwest Airlines, Spirit Stocks Fall After Earnings

The carrier may have reported record third-quarter revenue of $6.5 billion, but that was below analysts’ estimates. Adjusted earnings per share of 38 cents were in line with analysts’ expectations.

Demand remains solid, the company said, and it even expects record fourth-quarter revenue and record passenger numbers. But that’s pretty much where the good news ends.

Southwest said that leisure trends, so strong over the summer, “appear to be returning to historically seasonal norms” in the fourth quarter. Revenue per available seat mile, or unit revenue, is expected to fall between 9% and 11% in the current quarter from last year. That’s a sharper fall than the 6.8% drop in the third-quarter.

Cost pressures are mounting for all airlines, particularly for low-cost carriers whose business models mean they can’t hike air fares in response.

Southwest said fuel costs per gallon are set to rise, to a range of $2.90 to $3 in the fourth quarter, up from $2.78 in the third quarter.

One area discount airlines can counter rising costs is by filling up their planes. But Southwest’s load factor–the percentage of seats it was able to sell on flights–fell to 80.7% in the third quarter, from 85.4% the previous year.

The stock was 0.5% lower Thursday, paring earlier heavier losses.

Coming into earnings, the shares have fallen 38% since their July peak, and are 28% down in 2023.

Spirit (SAVE) stock was also pointing lower early Thursday after its third-quarter earnings. The discounter had a tough quarter, booking an adjusted loss of $1.37 per share, albeit a narrower-than-expected loss. The airline said softer demand and discounted fares in its markets led to a “disappointing outcome.”

Its load factor was also lower, dropping to 81.4% from 83.3% in the third quarter of 2022.

Again, it’s Spirit’s guidance and commentary around the fourth quarter that’s likely to concern investors. Spirit said it has “not seen the anticipated return to a normal demand and pricing environment” for the peak holiday period.

Revenue guidance of between $1.28 billion and $1.32 billion comes in below the analysts’ consensus of $1.39 billion. It also sees a higher fuel cost per gallon–$3.15–in the current quarter.

Spirit stock fell 3.8% in early trading.

The summer peak travel season is now a distant memory and investors are looking nervously to the coming quarters.

For low-cost names, there’s really not much to be optimistic about.

Write to Callum Keown at [email protected]