Southwest’s first full quarter charging for checked bags drives it to record Q3 revenue
Southwest became the third major airline to report its third-quarter earnings when it dropped its results after the bell Wednesday.
Southwest’s controversial revenue-boosting moves like charging for checked bags appear to be working. Shares of the Dallas-based carrier climbed more than 4% in after-hours trading following the release of its third-quarter earnings on Wednesday.
Southwest reported earnings of $0.11 per share, beating Wall Street estimates of a loss of $0.04 per share. Its operating revenue came in at $6.95 billion, better than analyst estimates of $6.92 billion and up about 1% from last year.
That revenue figure was boosted by Southwest’s bag fees, which the company introduced in the final month of its second quarter. On its second-quarter earnings call in July, Southwest said it expects the new fees to add $350 million in revenue this year, or $1 billion annualized.
According to Southwest, demand improved in July and held strong throughout the quarter. Corporate travel also improved from Q2.
Looking ahead, Southwest said it expects revenue per available seat mile to rise between 1% and 3% in the fourth quarter compared to last year. The carrier said it expects capacity to grow 6% in the current quarter. Last week, airline stocks fell following comments from a Bloomberg Intelligence analyst that certain airlines are growing capacity too fast for the current state of the economy.
Southwest maintained its forecast for full-year earnings before interest and taxes of between $600 million and $800 million. Prior to that forecast, the airline had guided for $1.7 billion.
Southwest isn’t out of revenue-driving moves. Larger rivals Delta Air Lines and United Airlines reported strong growth in premium tickets (extra legroom, priority boarding, etc.) in Q3. Southwest, which has spent much of this year abandoning its successful no-frills strategy, is playing catch-up. Its first plane redesigned for premium travel offerings had its inaugural flight last week. In late January, Southwest will roll out assigned seating and new fare tiers.
