Southwest Airlines Co stock gained more than 10% after the airline raised its Q3 forecast for revenue per available seat mile and announced a $2.5 billion share repurchase program. Southwest Airlines on Thursday unveiled several initiatives to shore up sagging profits, including partnerships, vacation packages for customers and aircraft sale-leasebacks.
Southwest Airline now expects revenue per available seat mile, which reflects pricing power, to increase between 2% to 3% in Q3, compared with its earlier expectation of flat to 2% growth.
Southwest Airlines strategy
Ahead of its Investor Day event in Dallas, Southwest Airlines also outlined its three-year strategic plan, which features the introduction of assigned seating by mid-2026 and premium seating options to offer extra legroom.
It also said it will formalize global airline partnerships starting with Icelandair in 2025 and will introduce redeye flights and optimize flight times to improve productivity.
Southwest Airlines forecast
By 2027, it projects approximately $4 billion in cumulative incremental earnings before interest and taxes (EBIT) and an after-tax return on invested capital (ROIC) of 15% or greater, well above the weighted average cost of capital.
“The strategic vision announced today is designed to return us to financial prosperity and drive value creation,” chief financial officer Tammy Romo commented.
Southwest’s revenue
The low-cost carrier has been hard-pressed for new high-margin revenue streams as costs have ballooned.
The company’s operating margin fell to 0.2% in the first half of this year from more than 13% in 2019, passenger volumes are running below pre-pandemic levels and shares have slid about 40% in the past three years.
It has downgraded its outlook at least eight times in the past 20 months despite booming travel demand. Analysts expect profit in 2024 to plunge about 83% from a year ago.
Southwest’s performance
The airline’s underperformance has raised questions about its business model. Jordan acknowledged the company needed to evolve and transform. “Our model is not broken but it is in need of continued calibration and enhancement,” he said.
Southwest stock update
Shares of Southwest added 10.6% at about $31 late morning on Thursday.
Its update also buoyed its airline industry peers, with American Airlines Group Inc adding 7.5%, United Airlines Holdings Inc up 6.4%, and Delta Air Lines Inc up 5.2%.
Southwest Airlines buyback
On Thursday, Southwest Airlines also boosted its Q3 revenue forecast and announced a $2.5 billion share buyback program.
