Lower fares and weaker bookings during Thanksgiving led Southwest Airlines to revise its financial forecast for the fourth quarter earlier this week.
“The week of Thanksgiving, the bookings were weaker than we expected and the pricing was much more aggressive competitively than what we we were expecting,” said Southwest chief executive Gary Kelly at a Wings Club luncheon in New York on Thursday. “There were a lot of walk up fares being discounted that week.”
Shares of Southwest [ticker: LUV] dropped 8 percent on Tuesday after the Dallas-based carrier told investors it expected its unit revenues for the fourth quarter would be flat to down one percent instead of up one percent in its previous forecast.
Kelly noted that the terrorist attacks in Paris and the travel advisories that followed may have also impacted travel across the industry. He added that with gas at a seven-year low, more Americans may have chosen to drive to their destination for the November holiday.
At the luncheon, Kelly also talked about the airline’s explosive growth at Dallas Love Field following the lifting of the Wright Amendment restrictions in 2014.
“We have never seen growth like that in a one-year period in a city in our history,” Kelly said, adding that the airline has been “instantly succcessful” and is “at capacity” with 180 daily flights at Love Field.
He also noted that the airline has successfully negotiated several new labor contracts even though both the pilots and flight attendants have rejected tentative agreements this fall.
“We just have to make sure that we are rewarding our people in a way that also allows their company to remain strong and that just requires change,” Kelly said, noting pay rates need to change and a few work rules that are antiquated need to be changed.
Moderator Michael Derchin, an analyst at CRT Capital Group, had a little fun with Kelly, asking him to dispel some popular myths about Southwest.
First, Derchin said that Southwest is no longer a low-cost carrier.
“Bull,” responded Kelly.
Then, Derchin said the airline was losing billions of dollars by not charging for bags.
“Poppycock,” Kelly said.
Does Southwest care more about their employees than their shareholders, Derchin asked?
And then there was a long pause from Kelly, who was speaking to a crowd of mostly New York Wall Street analysts and investors.
“Well, you know what? You can never take care of your shareholders if you don’t have good people because we are all in the business of people,” Kelly said after a few seconds. “And if you think for a minute, that you want to treat, for a minute, your people like an expense or a thing, you will never take care of your shareholders.”