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(Reuters) -Southwest Airlines Co on Thursday forecast higher costs and a slowdown in revenue after posting all-time record earnings in the quarter through June, sending its shares lower in premarket hours.
The Texas-based carrier said while its fuel hedges are offering “significant” protection against higher jet fuel prices, it is facing non-fuel cost pressures due to higher rates for labor and airports.
The company’s operating costs have also increased as capacity constraints are hurting productivity.
As a result, it expects non-fuel costs to be up as much as 15% in the current quarter from the same period in 2019. Airlines are using that year, before the COVID-19 pandemic, as the benchmark for their performance.
Stephen Trent, Citigroup (NYSE:C)’s airline analyst, said the cost estimate for the third quarter looks “a little heavy”.
The carrier estimates revenue in the third quarter to be up 8%-12% from 2019, slower than a 13.9% jump in the June quarter. However it expects to be solidly profitable for the remaining two quarters of this year, and in the full year.
Southwest’s shares were down 5.7% at $38.40 in pre-market trade.
As more people resume flying for holidays as well as for work, U.S. airlines are enjoying their strongest travel season in recent years.
But staffing gaps and aircraft shortages have made it tougher to ramp up capacity and fully tap booming demand. Carriers have been forced to cut flights and make costly staffing adjustments to avoid cancellations and delays, driving up operating costs.
Southwest, which has been aggressively hiring, said its staffing has returned to pre-pandemic levels. While the company has plans to add over 10,000 employees net of attrition this year, it intends to slow the pace of hiring in the second half.
The carrier said it is focusing on hiring and training pilots to help restore its network to pre-pandemic levels.
It expects its capacity in the September quarter to be flat versus 2019. Full-year capacity, however, is forecast to be down about 4% compared with 2019, as jet deliveries from Boeing (NYSE:BA) Co are expected to be lower than previously forecast.
Boeing, which flagged “real constraints” in the supply chain on Wednesday, is expected to hand over 66 jets this year compared to a previous goal of 114, Southwest said.
Southwest does not expect any deliveries of the 737 MAX-7 this year, which is yet to be certified by U.S. regulators.
The airline’s second-quarter revenue rose 68% to $6.73 billion from last year. Net income more than doubled to $760 million.
