Low airfares. They’re good news for air travelers, bad news for airline investors.
Shares of Southwest Airlines were in a tailspin Wednesday morning, down 11%, after the airline reported lower-than-expected sales. The reason: declining ticket prices.
The airline said that a key measure of the fares paid by passengers fell by 5% compared to a year earlier. While overall revenue was down only slightly, it fell short of forecasts. And the airline expects to see fares decline by another 4% to 5% in the fourth quarter.
Southwest added that “the overall [fare] environment remains soft,” so far for the current quarter,
Shares of rivals American Airlines, United Continental and Delta Air Lines were also slightly lower at the open. Those airlines have already reported their own airfare declines in the quarter.
Southwest’s profits fell 7% to $582 million. In addition to the lower fares, the airline took a $55 million revenue hit from a computer outage that forced it to cancel more than 1,000 flights in July.
The airline’s labor costs rose 12% after it paid out $356 million in signing bonuses to unionized employees, including pilots, on their new contracts.
