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Southwest Airlines Reports 30% Decrease in Quarterly Profit and Predicts Slower Growth for 2021

DALLAS (AP) — Southwest Airlines’ third-quarter profit fell 30% to $193 million despite record revenue as leisure travel boomed over the summer.

The airline’s labor costs rose sharply, however, more than offsetting the increase in revenue.

Southwest predicted Thursday that a key measure of pricing power will fall sharply in the fourth quarter and it will scale back its aggressive growth plans early next year.

The results, and particularly Southwest’s plans to throttle back on growth, are likely to add to concerns that demand for domestic travel, the heart of Southwest’s business, could weaken.

Shares of Southwest Airlines Co. slid nearly 5% before the opening bell.

The airline’s profit is down from $277 million a year ago and, excluding special items, worked out to 38 cents per share. That matched Wall Street expectations, according to a FactSet survey of analysts.

Revenue rose $305 million, or 5%, to $6.52 billion, just short of projections for $6.56 billion.

Southwest said revenue for each seat flown one mile, a closely watched measure of pricing power in the airline business, will decline 9% to 11% in the fourth quarter compared with the same period last year. That is a much sharper drop than those anticipated by its larger rivals.

Labor costs rose by $406 million, an increase of more than 17%. The airline saved $186 million because fuel was cheaper than a year earlier. Fuel prices have been rising recently, however, and Southwest expects to pay more per gallon in the fourth quarter than it did in the third.

The airline expects fourth-quarter passenger-carrying capacity to increase 21% compared with the same period last year. Southwest said it will cut that growth in half in the first quarter of next year — to between 10% and 12%, four points less than previously planned.

CEO Robert Jordan said that Southwest is slowing its growth rate in 2024 “to absorb current capacity, mature development markets, and optimize schedules to current travel patterns.”

Southwest depends almost entirely on travel within the United States. That helped the airline last year, but international travel has been stronger this year, boosting other airlines more than Southwest.

Delta Air Lines and United Airlines each reported $1.1 billion in profit and double-digit revenue growth, although United’s shares fell after it gave a dour outlook for the fourth quarter. American Airlines lost $545 million after taking $983 million in charges to cover contract-ratification bonuses for pilots.

All of the airlines face higher labor costs, but unlike its three closest rivals, Southwest has not reached agreement with its pilots on a new labor contract.

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