Southwest Airlines to Reduce Capacity Amid Weaker Domestic Bookings and Macroeconomic Uncertainty

Southwest Airlines announced on Wednesday that it plans to reduce its capacity in the second half of the year, as there are increasing indications of weaker domestic bookings this year. The airline stated that it anticipates unit revenue to be flat to down as much as 4% in the second quarter compared to the previous year. Additionally, Southwest has chosen not to reaffirm its guidance for earnings before interest and taxes for 2025 and 2026, citing "current macroeconomic uncertainty."

Capacity Changes and Performance

Earlier this month, both United and Delta disclosed their intentions to scale back their domestic capacity plans for the second half of the year. Delta also withdrew its full-year forecast, while United provided two forecasts, describing the U.S. economy as "impossible" to predict. In light of these changes, Southwest indicated that its full-year capacity would increase by 1% compared to 2024. Notably, the carrier's first-quarter earnings and revenue surpassed analysts' expectations.

Financial Performance

Southwest's financial performance in the first quarter showed resilience, as the carrier recorded a net loss of $149 million, an improvement from a loss of $231 million during the same period last year. Furthermore, revenue exceeded $6.4 billion, reflecting a 1.6% increase compared to the previous year. When adjusting for special items, Southwest reported a loss of 13 cents per share for the three months ending on March 31.

Significant Changes and Initiatives

Over the past year, Southwest has implemented significant changes to its long-standing business model. These changes include expanding the channels through which it sells fares to include platforms such as Expedia, transitioning from an open-seating model to assigned seats, and introducing restrictive basic economy tickets. Furthermore, the airline plans to commence charging many travelers for checked luggage next month, marking a departure from its longstanding policy of allowing customers to check two bags for free."

CEO Bob Jordan expressed optimism about the positive results stemming from the recently rolled-out initiatives, as indicated in an earnings release. The upcoming quarterly call at 12:30 p.m. ET on Thursday will provide an opportunity for analysts to pose questions to Southwest executives regarding the airline's performance and strategic direction.