Southwest Airlines said its net income jumped almost 35 percent to $820 million as its planes carried more passengers in the second quarter.
Although the Dallas-based carrier’s revenues increased 5 percent to $5.3 billion, customers were paying lower fares to fly on Southwest. The average passenger fare dropped 3.7 percent to $151.67 for the quarter.
“We are at a spot where, particularly with the close-in pricing, fares are softer than what we were expecting,” Kelly said on a conference call with investors on Thursday.
The carrier said it paid $1.81 per gallon of jet fuel, down 10.4 percent from the second quarter last year. Its network capacity was up 4.8 percent for the quarter and its load factor rose 1 percentage points to 85.6 percent.
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Excluding one-time accounting charges, Southwest said its net income was $1.19 per share, missing Wall Street analysts’ estimates of $1.21 per share.
Shares of Southwest [ticker: LUV] dropped 11 percent to $37.32 as investors reacted to the earnings announcement and the technology outage that caused the carrier to cancel hundreds of flights on Wednesday and Thursday. Kelly said the outage, which brought down the carrier’s website as well, could cost the airline up to $10 million in lost bookings.
Investors are disappointed that fares have dropped as airlines have added capacity and are competing to fill seats. As a result, unit revenue growth has slowed. Wall Street analysts have continued to question Southwest’s policy not to charge bag fees which could generate more revenue for the low-cost airline.
“We believe Southwest has to try harder, the question is when,” said J.P. Morgan analyst Jamie Baker in a research note. “Southwest continues to shun most industry-accepted practices (such as bag fees) and last week sat out a Delta-initiated $2 to $5 one-way domestic fare increase (which, at one point or another, virtually every other airline participated in).”