Southwest Airlines says a key measure of pricing power will be weaker than expected in 2Q

The Dallas-based airline said it still expects second-quarter revenue to hit a record

NBC 5 News

Southwest Airlines, already under pressure from a hedge fund for disappointing financial results, said Wednesday that a key revenue ratio will be weaker than expected because of changes in how consumers book travel.

The airline said it still expects second-quarter revenue to hit a record.

However, Southwest said, revenue for each seat flown one mile – a closely watched measure of pricing power – will fall by 4% to 4.5% compared with the same quarter last year. In April, the airline said the decline would be 1.5% to 3.5%.

The airline, which is dealing with rising labor costs, said costs per mile will rise by 6.5% to 7.5% compared with a year ago.

The Dallas-based airline said the revenue per mile outlook is worsening mostly due to its difficulty adapting its pricing to "current booking patterns in this dynamic environment.”

Travel is booming. Airlines expect a record number of passengers this summer but have undercut their pricing power by adding more flights and seats. Southwest still plans to increase flying by 8% to 9% over the second quarter of last year.

After losing $231 million in the first quarter, Southwest announced it would end service at four airports and reduce its workforce by 2,000 people this year.

This month, hedge fund Elliott Investment Management bought a $1.9 billion stake in Southwest and called for the ouster of CEO Robert Jordan and former CEO and current Chairman Gary Kelly. They said they had failed to modernize the airline's technology and strategy to keep up with changes in travel.

Jordan said he is not resigning and promises to unveil a plan to boost profit during an investor day in September.

Southwest shares fell more than 4% Wednesday morning before recovering to near break-even by late morning. Shares are down about 15% in the past year, while the S&P 500 index is up 28%.

Copyright AP - Associated Press
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