Southwest Airlines slows growth plans again with costs rising

Southwest Airlines Co. again trimmed growth plans for this quarter in response to rising costs and an industrywide glut of flights that’s pulling down fares.

Capacity will increase about 10% in the period, down from as much as 12%, the carrier said in a statement Thursday that also detailed fourth-quarter results. Southwest had already cut the target in October from as much as 16%.

The latest move adds to efforts by some carriers to slow planned growth in the US market, where demand has moderated outside of the winter holidays and ticket prices have dropped. Persistently high costs, delayed aircraft deliveries and prolonged engine maintenance are further straining the industry.

Investors welcome the moves to tighten capacity, which can allow carriers to raise fares and improve profitability by better matching supply to demand. The shares rose 3.3% at 9:37 a.m. in New York.

Southwest cited rising labor and maintenance expenses this quarter and said it “currently expects similar cost pressures throughout the year.” The carrier’s pilots approved a new contract recently that will boost pay 50% over five years, and the company is negotiating a new labor agreement with flight attendants. Excluding fuel, unit costs are expected to rise 6% to 7% in the first quarter.

Southwest no longer expects to begin flying the Boeing Co. 737 Max 7 this year as the plane awaits certification from federal safety regulators. The carrier cut the number of aircraft deliveries it expects from Boeing in 2024 to 79 from an earlier plan for 85 due to manufacturing delays at the planemaker.

Analysts have said the heightened scrutiny over Boeing’s operations — following a safety accident on a Max 9 aircraft this month — could lead to certification delays for the smaller Max 7 variant and larger Max 10. Southwest, which does not operate the Max 9, has a large order for the Max 7 and has called the plane critical to its plans to retire older jets and refresh its fleet.

After several years of expanded hiring following the pandemic, Southwest said it plans to end 2024 with an employee headcount flat to below 2023 as part of cost-control efforts.

Fourth-Quarter Beat

The airline’s fourth-quarter adjusted profit was 37 cents a share. Wall Street analysts had expected an average of 12 cents in estimates compiled by Bloomberg. Operating revenue was a record $6.82 billion, narrowly above expectations for $6.74 billion.

The company said it benefited in the year-end period from strong holiday travel, loyalty program revenue and managed business bookings.

Southwest expects capacity expansion this year of 6%, down from a prior expectation of as much as 8%.

“We plan to meter growth and continue to make adjustments, including capacity adjustments if needed, as we work vigorously to hit our financial targets,” Chief Executive Officer Bob Jordan said in the statement.