Southwest Airlines' managed corporate revenue increased 16 percent year over year in the first quarter and 25 percent in March, each figure the largest increase in the carrier's history COO Andrew Watterson said on a Thursday morning earnings call. "We are seeing clear traction with business travelers," he said.
Since the Jan. 27 launch of assigned seating and a new boarding process, the carrier has seen "an acceleration of new unique customers in our corporate channels, which indicates a kind of desire now to fly Southwest Airlines," Watterson added. "Also, within the same existing network of accounts, we've seen buy-up to the higher fares as corporate policy allows them to buy up."
Southwest president and CEO Bob Jordan declared the carrier's "transformed business model," including assigned seating and extra legroom seats, a success, even amid higher fuel prices and geopolitical uncertainty.
That new model "is translating into strong customer demand for our new product, strong financial results and strong margin expansion," said Jordan. He added the carrier expects its planned rollout of Starlink Wi-Fi, along with a new cabin design with in-seat power and larger overhead bins, "combined with recent product enhancements, to continue to drive growth in corporate business travel."
Increased Fuel, Fares
Southwest's first-quarter fuel cost was $2.73 per gallon, above prior guidance of $2.40, which increased Southwest's fuel expense in the quarter by $164 million, according to CFO Tom Doxey.
Jordan noted the fuel headwind for the second quarter is projected to be $1 billion.
To mitigate that cost, Southwest has raised its fares and its baggage fees, as have other major carriers. When asked how many industry fare increases the airline has participated in, "I count five broad industrywide fare moves and another one underway today," Watterson said. "Those all stuck, which means all carriers participated."
Southwest also is trimming capacity, like other carriers are. During the quarter, Southwest announced it was pulling out of Chicago O'Hare and Washington Dulles, "which were underperforming," according to Jordan. It also is cutting some "lower-return flying" and "redeploying that capacity to higher-margin opportunities," he added.
At the same time, Southwest is adding capacity were there's been market strength, including San Diego, Orlando and Nashville, Jordan said.
Southwest Q1 Metrics
Southwest first-quarter passenger revenue was nearly $6.6 billion, up 13.4 percent year over year. Total revenue was more than $7.2 billion, a 12.8 percent increase. Net income was $227 million compared with a loss of $149 million a year prior.
First-quarter capacity increased 1.5 percent year over year. Southwest anticipates second-quarter capacity to be flat to up 1 percent year over year. Jordan said full-year capacity is now expected to increase about 2 percent, at the low end of prior guidance of 2 percent to 3 percent.
Southwest currently projects fuel cost for the second quarter to be $4.10 to $4.15 per gallon.
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