Shares of Southwest Airlines fell Thursday after the company offered a weak forecast for a key revenue figure in the third quarter.
Southwest gave more evidence that the effort by U.S. airlines to push average fares higher may be faltering. Bolstered by high profits, the airlines could soon be adding capacity faster than demand is growing, leading to more price-slashing.
That would be good news for travelers. But it is troubling for airline shareholders, who are worried that revenue could fall while fuel and labor costs are rising.
Southwest said so-called unit revenue, the amount it gets for every seat flown one mile, was 1.5 percent higher in the second quarter than a year earlier.
For the current July-through-September quarter — including much of the busy summer travel season — Southwest expects the same figure to rise just 1 percent.
Analysts had been more bullish about the third quarter. J.P. Morgan’s Jamie Baker called the Southwest forecast uninspiring and a sign that expectations for third-quarter profit might need to be reduced.
Southwest shares (ticker: LUV) fell $2.95, or about 5 percent, to close at $56.57.
Dallas-based Southwest, the nation’s fourth-biggest airline, reported a second-quarter profit of $746 million, down 9 percent from a year earlier.
Adjusted profit was $1.24 per share, beating the forecast of $1.20 per share from analysts surveyed by Zacks Investment Research.
Revenue rose 7 percent to $5.74 billion. Costs, however, rose faster than revenue, led by a 14 percent increase in labor — unions have demanded better pay while the airlines are profitable — and 10 percent for fuel.