By Rajesh Kumar Singh
CHICAGO, May 28 (Reuters) – Southwest Airlines CEO Bob Jordan said on Wednesday the carrier has seen no drop-off in demand after joining seven industry fare increases since February, making him increasingly confident the airline can offset higher fuel costs with stronger revenue.
Speaking at a Bernstein investor conference, Jordan said the fare increases were the most he could recall in his 38 years in the industry. But demand remained strong across leisure and business travel, geographies and the booking curve, he said.
“With fares up though that much, there’s been no drop-off in demand at all,” Jordan said.
His comments add to signs that U.S. carriers are retaining pricing power even as a jump in jet fuel prices threatens to pressure margins, helped by strong premium and business demand and reduced discount-carrier competition.
Jordan said the fare increases so far were not enough to fully cover the rise in fuel prices, and further increases would be needed if fuel stayed at current levels.
He said while he expects fuel prices to eventually ease, they could remain elevated for longer than current market expectations suggest. “I do think you’re going to have higher fuel for longer,” he said.
Jordan said he was bullish that the industry would retain a higher share of recent fare increases than it has historically once fuel prices fall, citing greater industry discipline and the exit of Spirit Airlines from the market.
MORE PREMIUM OPTIONS
Jordan also signaled Southwest could go further in reshaping its product, saying the airline may add more cabin options, including “true first class,” and is likely over time to delve into long-haul international flying. He cautioned, however, that those were still ideas.
Southwest has been overhauling its business after pressure from activist investor Elliott Investment Management and weaker profit margins following the pandemic.
Jordan said the Dallas-based carrier does not need to become Delta Air Lines, United Airlines or American Airlines with a large global long-haul network. But he said a limited number of long-haul destinations could make the airline “highly relevant” to its customers.
“I want to give you fewer and fewer reasons to book another airline,” Jordan said, while adding Southwest would remain focused on its domestic schedule, nonstop flights, operations, hospitality and employees.
Jordan said Southwest expects roughly 300 aircraft to be equipped with Starlink by year-end and is working on a lounge network, though it is not ready to announce details.
Southwest has already introduced assigned seating, extra-legroom seats and other product changes. Jordan said business revenue rose 25% in March from a year earlier, with that trend continuing in April and May.
He said enrollment in Southwest’s Rapid Rewards loyalty program rose 37% in the first quarter, while the number of customers qualifying for higher loyalty status rose 60%, signs customers are responding to the product changes.
NETWORK AND DEALS
Jordan said Southwest was moving capacity away from markets that were not producing desired returns, including Washington Dulles and Chicago O’Hare, and toward stronger markets such as San Diego, Austin and Nashville. Asked about industry consolidation, Jordan said the current environment felt ripe for airline mergers and acquisitions, but added that Southwest was not working on any deal and did not see an obvious combination. On JetBlue Airways, Jordan said he could not speak for the carrier but did not necessarily see a lot of interest given its debt load.
(Reporting by Rajesh Kumar Singh, Editing by Franklin Paul and Nick Zieminski)
Comments