Southwest Airlines has made significant adjustments to its third-quarter revenue guidance, anticipating a positive shift in its key revenue metric. On Thursday, the airline projected an increase in revenue per available seat mile by 2% to 3% for the September quarter, contrary to its earlier forecast, which estimated a decline of 2% to flat year-over-year.
This adjustment reflects a strategic approach to enhance profitability while navigating the complexities of the aviation market. In parallel, Southwest has pledged to unlock $500 million in run-rate cost savings by 2027. This initiative focuses on optimized hiring practices and broader efficiency measures.
The airline’s third-quarter economic fuel costs are projected to be between $2.50 and $2.60 per gallon, a revision from an earlier estimate that ranged from $2.60 to $2.70. The company maintains a cost per available seat mile forecast, excluding fuel and other variables, projecting growth between 11% to 13% for the third quarter.
Additionally, Southwest anticipates a 2% rise in available seat miles and has set an overall capacity growth target of 4% for the year. To solidify its financial position, Southwest has introduced a multi-year plan aimed at delivering substantial cost savings exceeding $500 million by 2027. The strategy involves minimizing hiring and improving aircraft scheduling to boost efficiency.
Notably, the airline's stock experienced a significant uptick of 10% during Thursday's trading sessions. Furthermore, Southwest aims to modernize its fleet significantly, aspiring to achieve an average aircraft age of just five years by 2031. This strategy is expected to reduce average capital expenditures on aircraft to around $500 million by 2027, following an estimation made in July of $1 billion for aircraft capital spending in 2024. The airline's comprehensive financial blueprint outlines nearly $4 billion in cumulative incremental earnings before interest and taxes by 2027, alongside a targeted return on invested capital of 15% or more. In a further testament to its commitment to shareholder value, the Southwest board has authorized a substantial $2.5 billion share repurchase program. In a corporate governance shift, earlier this month, Southwest announced substantial changes within its board structure.
This included plans for the 2025 retirement of Executive Chairman Gary Kelly and the induction of four new independent directors to the board. Activist investor Elliott Investment Management has also expressed intent to call a special meeting in the near future, focusing on efforts to replace Chief Executive Bob Jordan.
In response, Southwest reiterated that Elliot has not engaged constructively with the company, despite ongoing public challenges that have emerged during this period..