Southwest shares plummet after tech issues force profits down by a third
Southwest Airlines missed quarterly revenue estimates yesterday which were partly affected by a technology problem in July which forced flights to be cancelled.
Company shares were down more than 12 per cent during early morning trading on Wednesday as it was revealed that profits had taken a 30 per cent dip.
The results
Net income declined to $388m, down from $584m at the same time last year. Total operating revenue declined 3.4 per cent to $5.14bn.
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The company also said it expected results for the next quarter to take a four to five per cent decline – far below the drop of 2.6 per cent that was predicted by Deutsche Bank.
Why it's interesting
A tech issue over the summer forced the Dallas-based carrier to cancel more than 2,000 flights and saw it refund passengers. This pushed the airline’s revenues down 4.1 per cent in the past quarter. The company also said that Hurricane Matthew cut revenue per available seat mile by around half a point, reflected next quarter.
While more people booked travel on Southwest in the third quarter, fares on average were lower than they were a year earlier, especially for trips booked at the last minute.
What the company said
"It was a pretty interesting quarter," Southwest chief executive Gary Kelly said on CNBC on Wednesday. "We had a technology outage in July, that was anticipated by everybody, but we came in right in line with what we expected."
We have tough year-over-year comparisons, so without the technology outage our unit revenues were down in the 3.5 per cent range, and it looks like those trends are going to continue here in the fourth-quarter.