Growth Strategies

Shutdown Puts Cloud on Southwest’s Revenue

The airline posted strong Q4 earnings but said the government shutdown has reduced revenue so far this month by as much as $15 million.
Matthew HellerJanuary 24, 2019
Shutdown Puts Cloud on Southwest’s Revenue

Southwest Airlines reported better-than-expected quarterly earnings on Thursday but said it is losing revenue because of the partial government shutdown.

The fourth largest U.S. airline by passenger traffic posted fourth-quarter earnings of $1.17 per share, above analysts’ estimates of $1.07.

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Revenue increased 8.5% to $5.70 billion, beating estimates of $5.67 billion, while operating income rose 10% to $820 million. Unit revenue, a closely watched performance metric that compares sales to flight capacity, grew 1.8% in the quarter ended Dec. 31.

“We finished the year strong, with record fourth quarter net income and earnings per diluted share, excluding special items,” CEO Gary Kelly said in a news release. “This was driven by strong yields, record revenues, and a solid cost performance.”

In trading Thursday, Southwest shares rose 5.4% to $53.78.

But the airline said the government shutdown, now in its 34th day, has knocked between $10 million and $15 million off revenue so far in January. It previously reported that its plan to launch service to Hawaii had been delayed as many federal workers, including those who oversee route authorizations, remained furloughed.

“Hawaii remains our expansion focus for 2019,” Kelly said, adding, “We are anxious for the government to resolve this shutdown so we can bring low fares and a boost to Hawaii’s travel and tourism industry.”

Southwest Chief Operating Officer Mike Van de Ven said the airline has a “reasonable chance” of beginning service by the end of March if the shutdown ends within a week. “Otherwise, it will actually be in the second quarter,” he told USA Today.

Assuming no further significant impact on bookings from the ongoing government shutdown, Southwest currently estimates first-quarter unit revenue to increase in the 4% to 5% percent range, compared with first quarter 2018.

“Our financial goals for 2019 are to grow profits and earnings per share, expand margins, improve returns on invested capital, and maintain an investment-grade balance sheet,” Kelly said. “I am pleased with our revenue momentum, particularly with our unit revenue growth expectations for the first half of the year.”

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