The profit of Southwest Airlines drops by 46% as the airline takes immediate measures to boost its income.

• Non-fuel costs may rise by up to 13% in the third quarter, according to Southwest's forecast.
• To boost sales, the airline intends to introduce assigned seats and an upgraded legroom option.
• Southwest is under pressure from an activist investor after it lagged competitors.

The third quarter may see a potential drop in unit revenue for airlines due to an oversupplied U.S. market, which has forced discounted ticket prices during the usually lucrative period.

The airline, Southwest, predicts that unit revenue for the current quarter may decrease by up to 2% compared to the previous year, while non-fuel expenses could increase by as much as 13%. These higher costs are expected to have a negative impact on the airline until the end of 2024.

Shares of Southwest fell 4% in premarket trading Thursday.

According to consensus estimates from LSEG, how did Southwest fare in the second quarter compared to Wall Street expectations?

• Earnings per share: 58 cents adjusted vs. an expected 51 cents
• Revenue: $7.35 billion vs. $7.32 billion expected

Southwest reported a 4.5% increase in second-quarter revenue to $7.35 billion, a record, but its profit decreased more than 46% to $367 million, or 58 cents a share. Additionally, revenue per available seat mile, a measure of airline pricing power, decreased by 3.8%, which is consistent with Southwest's reduced forecast from last month.

Analysts' expectations were surpassed by Southwest's adjusted per-share earnings of 58 cents.

CEO Bob Jordan stated in an earnings release that our second quarter performance was affected by both external and internal factors and did not meet our expectations.

Boeing is struggling to deliver aircraft on time due to safety and manufacturing crises, resulting in fewer deliveries to Southwest than expected. Southwest now anticipates receiving only 20 deliveries from Boeing this year, which is less than half of the previously forecast amount.

Pressure from investors to increase revenue is prompting an overhaul at the airline, with Elliott Investment Management revealing a nearly $2 billion stake and calling for a leadership change last month.

Southwest Airlines has announced significant changes to its business model, including the elimination of its open seating plan and the addition of extra legroom seats and overnight flights, effective next year. These changes will make Southwest more similar to its network carrier competitors.

Jordan stated that we are taking immediate and calculated actions to address short-term revenue difficulties and implementing long-term transformative strategies to stimulate significant growth in both revenue and profitability.

Executives anticipate that U.S. capacity will start to decrease next month, potentially resulting in increased fares.

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