Southwest Airlines lost $100 million in revenue due to April accident, but still reported solid earnings
The first onboard passenger fatality in Southwest Airlines’ history cost the Dallas-based airline about $100 million in revenue, but did not prevent the carrier from reporting strong earnings for the April-through-June quarter.
Executives of the low-cost carrier reported that the April 17 accident on a flight from New York to Dallas resulted in a slowdown in bookings that cut by 2% the revenue per available seat miles, a key measurement airlines use to gauge the efficiency of their carrier.
Federal aviation inspectors say an engine fan blade failed and broke away during the flight, sending shrapnel into the fuselage and shattering a window. Jennifer Riordan, a bank executive and mother of two who was sitting next to the window, was killed. The flight made an emergency landing in Philadelphia. No other passengers were injured.
The airline temporarily stopped its marketing campaign and launched a 30-day schedule to inspect engines on the entire fleet of more than 700 Boeing jets.
Despite the financial hit, the carrier reported a solid 12.8% net profit margin during the second quarter, compared with 13% in the year-earlier quarter. Net income fell to $733 million from $743 million in the second quarter of 2017. The airline reported second-quarter earnings per diluted share of $1.27, reflecting fewer shares outstanding than in the year-earlier quarter.
“I feel very good about the underlying strength of the business and how we’ve rebounded since April 17,” Southwest President Thomas Nealon said during a conference call with industry analysts.
But Nealon and other airline industry experts have noted that the increasing cost of jet fuel will make it harder for carriers to report such strong profit margins. At Southwest, the price of fuel increased 11% to $2.21 per gallon compared to the same period last year.
Rising fuel costs are one of the primary reasons that the Global Business Travel Assn., the trade group for travel managers worldwide, has projected a 2% increase in airfares in the United States this year.
Two likely reactions by airlines to the higher fuel costs will be to raise the cost of passenger fees or to cut capacity, either by flying fewer planes or eliminating the least profitable routes, said Mike McCormick, GBTA executive director and chief operating officer.
“Some of those options will come under scrutiny,” he said.
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