Southwest posts record revenue but warns of rising costs

FILE - Southwest Airlines jets are stored at Sky Harbor International Airport in Phoenix, Tuesday, April 28, 2020. Southwest Airlines said Thursday, July 28, 2022, that second-quarter profit doubled to $760 million on record revenue, but it warned th

DALLAS — Southwest Airlines’ second-quarter profit doubled to $760 million on record revenue, but it warned that rising costs and lower productivity are likely to continue in the second half of the year.

Shares fell 7% Thursday in midday trading.

Air travel has bounced back this year from pandemic depths, and that is particularly true for Southwest’s strength in leisure travel within the United States. The Dallas carrier said ticket demand has continued in the third quarter.

But costs are rising sharply, too.

Southwest’s fuel spending more than doubled, an increase of more than $800 million from a year ago, even though the airline hedges, or makes investments to offset rising energy prices. Spending on wages and benefits rose 21%, or about $400 million in a year.

Southwest and other airlines are also dealing with high numbers of canceled and delayed flights this summer, which adds to costs.

“As anticipated, we experienced inflationary pressures and headwinds from operating at suboptimal productivity levels in second quarter, which we expect will continue in second half 2022,” CEO Robert Jordan said in a prepared statement.

Still, Jordan said, the airline continues to expect it will be “solidly profitable” for the rest of the year “barring significant unforeseen events.”

Southwest has been hiring pilots and other workers, and in May it returned to staffing levels that it had not reached since the pandemic led it and other carriers to convince thousands of workers to quit or take long-term leave.

The airline said it expects to add 10,000 jobs this year but will begin “moderating” hiring in the second half of the year. Even with less hiring, Southwest expects non-fuel costs to rise by 12% to 15% per mile in the third quarter.

Southwest pared flights from its summer schedule after widespread disruptions this spring. It said it has added back some short routes that are popular with business travelers.

Southwest’s second-quarter profit compared with $338 million a year ago and also topped the $741 million it earned in the same period of 2019, before the pandemic.

The airline reported that adjusted earnings were $1.30 per share. Revenue jumped 68% to $6.73 billion.

Analysts expected earnings of $1.17 per share on revenue of $6.69 billion, according to FactSet.

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