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Southwest Airlines’ Load Factor Continued to Shrink

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Load factor

On January 8, Southwest Airlines (LUV) reported its operating performance for December. The company’s utilization rate or load factor continued to shrink for the ninth consecutive month. In December, the company’s load factor contracted by 170 basis points YoY (year-over-year) to 81.6%. For the past nine months, the company hasn’t brought in enough traffic to accommodate the increased capacity, which is impacting its load factors.

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For the fourth quarter and fiscal 2018, Southwest Airlines reported a decline in the load factor by 150 basis points and 50 basis points, respectively. The utilization rates of 83.5% and 83.4% for the fourth quarter and fiscal 2018 also fell short of analysts’ estimate of 84.7% and 83.9%, respectively.

Among the major US air carriers (JETS), only Delta Air Lines (DAL) reported its December and fiscal 2018 traffic data. The company’s load factor fell by ten basis points in 2018. American Airlines (AAL), United Continental (UAL), and JetBlue Airways (JBLU) registered a load factor expansion of 30 basis points, 130 basis points, and 80 basis points in the first nine months of 2018.

Falling yield

A decline in the utilization would mean less efficient capacity use, which would likely have a negative impact on the passenger yield per RPM (revenue passenger miles) or airline unit revenues. From January to September, Southwest Airlines’ unit revenues fell 1% YoY to 15.20 cents.

Southwest Airlines registered a decline of 2.8% and 2.5% in the passenger yield in the first and second quarters. Intense competition and a suboptimal flight schedule caused the yield to decline in the first quarter. A similar suboptimal flight schedule and the negative impact of the company’s Flight 1380 accident caused the yields to fall in the second quarter.

Southwest Airlines marked a strong recovery in the third quarter. The company’s passenger yield increased 2.3% YoY to 15.27 cents. Since the passenger yield fell 1% until September, Southwest Airlines could have accomplished its target of ending 2018 with an improved yield.

Southwest Airlines’ peers recorded an improvement in the passenger yield from January to September. United Continental, American Airlines, and JetBlue Airways’ yields improved 2.5%, 1.6%, and 0.9%, respectively.

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