DALLAS (AP) — Southwest Airlines said second-quarter earnings dropped 10% to $683 million as labor costs soared, offsetting record revenue at the start of the peak summer travel season.
However, the airline warned Thursday that a key revenue ratio will drop and non-fuel costs will rise in the third quarter.
The shares fell more than 6% in trading before the opening bell on Wall Street.
Southwest said that revenue for every seat flown one mile — a closely watched ratio in the airline business — will drop by between 3% and 7% in the third quarter, compared with the same period last year.
That is adding to investor concern — fueled by a report earlier this week from Alaska Airlines — that demand for air travel might finally be cooling after a strong recovery from the pandemic.
Southwest and Alaska both operate mostly domestic flights, and they are benefitting less than bigger rivals Delta, United and American from the boom in international flying.
The second-quarter results from Dallas-based Southwest, which were aided by lower fuel prices, beat analysts’ expectations. The company predicted record revenue and another profit in the third quarter, but warned of higher non-fuel costs.
Southwest is locked in drawn-out negotiations with pilots and flight attendants, who have not received pay raises in several years. Unions are aiming to match higher wages won by counterparts at other major U.S. airlines.
Southwest’s profit fell from $760 million a year earlier. Excluding special items, per-share earnings were $1.09, beating the analyst consensus forecast of 99 cents per share, according to a FactSet survey.
Revenue rose 5% to a quarterly record of $7.04 billion, topping the $6.31 billion prediction of analysts.
Southwest’s labor costs rose 25.5% from a year earlier, an increase of more than $500 million, and the airline said third-quarter non-fuel costs would rise by 3.5% to 6.5% for each seat flown one mile, mostly in anticipation of higher wages.
Southwest Airlines Co. spent 14% less on fuel than a year earlier, a savings of more than $200 million, because of lower prices.