Southwest Airlines Sees Signs Of Slowdown

US airlines have been experiencing a robust demand environment, but the 2023 outlook is cloudier.

Credit: Joe Pries

Southwest Airlines CEO Bob Jordan said the airline is seeing data that typically indicates a slowing of demand, but he said it is premature to make any capacity adjustments.

The Dallas-based carrier matched 2019 capacity levels in the second quarter—though its network is only 80% restored versus 2019—and, like the rest of the US industry, is experiencing a strong demand environment currently.

But Jordan, speaking to analysts July 28 to discuss the airline’s second quarter results, cautioned that a downturn may be around the corner. “I'll admit that there's a lot of noise out there right now,” he said. “It seems that all of us know someone who has this latest strand of COVID, inflation pressures are real, and [the public is] worried about a potential recession. Consumer and business sentiment is down, and there are data points out there that could indicate early signs of a slowdown. But so far, demand remains strong and we haven't seen material impacts to our business. As always, we'll continue to monitor the environment and be ready to respond if needed.”

Southwest has not changed its 2023 first-quarter forecast, which is to operate capacity 10% above 2019 levels, and it is aiming to fully restore its pre-pandemic network by the end 2023. The network is expected to be 85% restored by the end of 2022.

But the airline is cautious about forecasting too far ahead. “It is still very early for 2023,” Jordan said. “So, we're just going to take it one quarter at a time beyond our currently published schedules, but we're turning our focus to 2023.”

Chief commercial officer Andrew Watterson reiterated that presently demand is strong. “Leisure demand was robust and we also saw a notable improvement in business demand,” he said. “Current demand trends remain strong. We continue to experience strong passenger bookings … and load factors.”

But, like Jordan, he does have concern about the demand environment going forward. “I would be remiss if I didn't mention that there are quantitative anecdotes from external data that indicate industry yields are softening off of the peak of June,” Watterson said. “We are watching our bookings very closely.”

Southwest earned a second-quarter net profit of $760 million, up 2.6% over net income of $741 million in the 2019 June quarter.