It’s a big day for Southwest Airlines. The airline has announced plans to introduce assigned and premium seating, and also intends to fly redeye flights as of early 2025. On top of that, Southwest has today reported its Q2 2024 financial results, which I wanted to take a look at.
I don’t usually cover Southwest’s financial results, but I think it’s an interesting thing to briefly talk about, given that the airline is currently evolving its business model. Separately, I’ve covered Delta’s lackluster financial results, United’s fairly impressive financial results, and American’s awful financial results.
Southwest profits decline nearly 50%, guidance lowered
Southwest has reported its Q2 2024 financial results. Like most airlines, the Dallas-based carrier reported record revenue of $7.35 billion, compared to $7.0 billion in Q2 2023, representing a 4.5% increase. Unfortunately the airline also reported a 46% drop in profits, as net income was $367 million, compared to $683 million in Q2 2023.
Southwest has the same problem as all other carriers, as costs have gone up, while unit revenue has gone down due to more competition (or industry overcapacity, as airline executives like to call it). The airline saw revenue per available seat mile of 15.9 cents, compared to 16.53 cents in Q2 2023, representing a 3.8% decrease.
Southwest has just lowered its outlook for Q3 2024 as well. Compared to Q3 2023, the airline sees revenue per available seat mile decreasing by up to 2%, and sees cost per available seat mile excluding fuel increasing by 11-13%. Obviously higher costs and lower revenue aren’t good, but this is the same exact situation that just about every airline is facing.
Why I see some upside for Southwest
To Southwest’s credit, it’s one of only two major, primarily domestic US airline that’s making any money, even if the margins aren’t as good as they used to be (with the other being Alaska). Why is Southwest doing better than other primarily domestic airlines? I think it comes down to two factors, primarily:
- Southwest has managed to scale its network to a level that other carriers haven’t been able to, and that’s powerful (it’s one of the reasons I was in favor of JetBlue’s takeover of Spirit, since there’s power in scale)
- Southwest has a very robust loyalty program that generates lots of revenue for the airline, thanks to the carrier’s network, plus it being an airline that people generally like to fly
Now, while the rest of 2024 probably won’t be great for Southwest, I honestly think Southwest has the most potential upside of any US airline for 2025 and beyond.
Look, when you hear American showing awful results, and the CEO then suggesting that things will somehow get better, you can’t help but be skeptical. American just doesn’t have many “levers” to pull to improve its profitability, because the airline has squarely cornered itself into the third place spot among global US carriers.
However, Southwest has been profitable in spite of its lack of evolution, and now we’re finally starting to see the airline evolve:
- Southwest will start assigning seats and will introduce premium seating, which could generate billions of dollars in incremental revenue annually (early estimates I see suggest that this could lead to a $1.1-3 billion annual increase in revenue)
- Southwest will start flying redeye flights, leading to much better aircraft utilization
And those are only the start of the changes. Unlike American, Southwest does have “levels” to pull to improve its profitability, and I think we’re going to start to see those soon.
Bottom line
Southwest has reported its Q2 2024 financial results. Like most of the industry, the airline has reported record revenue, but profits have declined sharply compared to last year, and Q3 2024 isn’t looking great either.
However, Southwest has huge potential to generate more revenue by updating its business model, and plans to do so with assigned seating, redeye flights, and more. I’m curious to see what the company’s situation looks like a bit over a year from now.
What do you make of Southwest’s financial results?
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