Southwest Airlines Co. (LUV.US) responds to "flight recovery wave": Q3 performance exceeds expectations, expected holiday season revenue to reach record levels.

Southwest Airlines Co. (LUV.US) announced its third-quarter performance. According to LSEG data, the third-quarter revenue was $6.95 billion, an increase of 1.1% year-over-year, higher than market expectations. Passenger revenue was $6.3 billion, an increase of 1.0% year-over-year; adjusted EPS was $0.11, analysts had expected a loss of $0.032 per share, thanks to the revenue brought in by its new policy of charging baggage fees to passengers. The company also stated that it expects operating revenue in the last few months of the year to reach a historic high. Southwest Airlines Co.'s profits for the third quarter decreased by over 19% compared to the same period last year, from $67 million to $54 million. On a per-share basis, Southwest Airlines Co.'s earnings decreased from 11 cents in the same period last year to 10 cents. After deducting one-time items, Southwest Airlines Co. announced a profit of $58 million for the third quarter, or 11 cents per share. From an operational perspective, in the third quarter, cost per available seat mile (CASM-x) increased by 2.5% compared to the same period last year, reaching $0.122. This increase is attributed to enhanced cost control. In addition, revenue per available seat mile (RASM) and passenger revenue per available seat mile (PRASM) remained essentially flat compared to last year, at $0.153 and $0.139 respectively, while the airline's load factor decreased by 140 basis points to 79.8%. Southwest Airlines Co. forecasts a significant increase in passenger traffic during the holiday period, echoing the optimism of other major US airlines (such as Delta Air Lines, Inc. (DAL.US) and United Airlines (UAL.US)). These airlines point out that domestic passenger demand in the US has begun to recover after a poor performance earlier in the year. In July, Southwest Airlines Co. and other airlines lowered their profit expectations for 2025. Previously, when Delta Air Lines, Inc. announced its third-quarter performance, it forecasted that market demand would remain strong in the coming year. United Airlines' CEO stated, "As the economy and demand continue to improve in the fourth quarter, the company has significant upside potential." Meanwhile, American Airlines Group Inc. (AAL.US) also raised its profit forecast for 2025 on Thursday, indicating that the industry-wide capacity cuts following the demand decline earlier this year are beginning to show the effects of price increases. Southwest Airlines Co. is currently undergoing a large-scale transformation project, which is a departure from the "one-size-fits-all" business model that has been in place for the past few decades, and has allowed it to maintain a competitive edge over its competitors. The airline has been working to enhance its competitiveness to better compete with its rivals and increase sales. To do this, they have abandoned long-standing policies such as open seating arrangements and each passenger being able to check in two bags for free. The airline canceled its free checked baggage policy in May and will begin charging for seats next year, with the goal of increasing pre-tax profits by an additional $1.8 billion through this reform. Looking ahead, Southwest Airlines Co. reiterated its full-year EBIT forecast to be between $600 million and $800 million. CEO Bob Jordan reaffirmed the company's full-year pre-tax profit forecast in the performance report and predicted a "significant" improvement in profit margins for the fourth quarter. The third-quarter operating revenue did not reach $7 billion, but showed a slight increase compared to the same period last year. The company also noted that corporate travel business improved compared to the second quarter, with loyalty-related revenue growing by 7%. Other airlines have stated that leisure travel (which accounts for a significant portion of Southwest Airlines Co.'s revenue) is gradually recovering after hitting rock bottom earlier this year due to President Trump's push to restart global trade.