You might think that record-breaking revenue is always a reason to pop the champagne. But for Southwest Airlines and their second quarter of 2024, the mood was more like a "polite golf clap" mixed with some intense backroom sweating. Honestly, the numbers they posted on July 25, 2024, tell two very different stories depending on which line of the ledger you're staring at.
On one hand, Southwest hit an all-time quarterly record for operating revenue. That’s huge. On the other hand, their profits took a massive nosedive compared to the previous year. It’s that classic "growth at a cost" problem that has activist investors like Elliott Investment Management breathing down management's neck. Basically, the airline is flying more people than ever, but they're making way less money off each seat.
The Numbers Nobody Talks About
Let's look at the Southwest Airlines Q2 2024 results revenue EPS LSEG consensus versus what actually hit the tape. Wall Street analysts (the LSEG folks) were expecting something a bit softer, but Southwest actually "beat" the estimates on a few fronts.
Specifically, the airline reported net income of $367 million, or $0.58 per diluted share. If you look at the adjusted EPS (excluding special items), it was also $0.58. Now, compare that to what the experts thought would happen. The consensus was hovering around $0.50 to $0.51 per share. So, on paper, they beat the EPS consensus by about 16%.
Revenue followed a similar "beat" pattern. Southwest pulled in a record $7.4 billion in operating revenue, which was a 4.5% increase year-over-year. Analysts were looking for something closer to $7.32 billion.
- Total Operating Revenue: $7.4 billion (Record)
- Net Income: $367 million (Down 46% YoY)
- Adjusted EPS: $0.58 (Beat consensus)
- Liquidity: $11.0 billion
But here is the kicker. Even though they beat the consensus, the net income was down nearly 46% from the $683 million they reported in Q2 of 2023. That is a staggering drop for a company that is supposedly hitting "record" revenue.
Why the Profit Drop?
It really comes down to unit revenue (RASM) and costs (CASM-X).
Unit revenue—which is basically how much money they make for every seat they fly one mile—dropped 3.8%. Why? Because every airline in the country decided to flood the market with domestic seats at the same time. When there are too many seats and not enough people to fill them at high prices, you have to discount. Southwest admitted they also messed up their "booking curve," meaning they sold too many cheap seats too early for the peak summer travel season.
Meanwhile, their costs (excluding fuel) shot up 6%. Most of that was driven by labor. Pilots and flight attendants aren't cheap these days, and "market-driven rate inflation" is a fancy way of saying they had to pay up to keep their crews happy.
The Elliott Shadow
You can't talk about these results without mentioning the elephant in the room: Elliott Investment Management. This activist hedge fund has been a thorn in CEO Bob Jordan’s side for months. Around the time these results dropped, Elliott was screaming for a total overhaul of the board and the leadership.
They looked at these "record revenues" and saw a company that was fundamentally broken. They pointed out that while Southwest was bragging about $7.4 billion, their stock price had been lagging behind the S&P 500 for a long time. In fact, by the time Q2 results were out, LUV shares had lost about 8% of their value since the start of the year.
Southwest eventually caved to some of this pressure. They announced they’d be ditching their famous "open seating" policy—which some people love and others absolutely loathe—and moving to assigned seating and premium "extra legroom" seats. They’re even starting red-eye flights. It’s a massive cultural shift for the "Love" airline.
Operational Wins (Sort of)
If there was a bright spot, it was the "completion factor." Southwest managed to fly 99.5% of their scheduled flights despite some pretty nasty weather in Texas and Florida. That’s a huge deal for an airline that was still recovering from that infamous 2022 holiday meltdown in the eyes of the public.
They also got a weird little boost at the end of June. Some other airlines had cancellations due to severe weather, and Southwest was there to pick up the pieces, capturing "incremental bookings" from stranded passengers.
What This Means for You (The Investor/Traveler)
If you're an investor, the Q2 results were a bit of a "wait and see." The beats were nice, but the shrinking margins are terrifying. Management promised that unit revenue would start looking better by Q4 of 2024 as they cut capacity and better matched supply with demand.
For travelers, the message is clear: the Southwest you know is changing. Expect to see:
- Assigned Seating: Coming in 2025/2026.
- Premium Seats: They need those higher-margin tickets to fix these profit issues.
- Capacity Cuts: Fewer flights on underperforming routes to help prop up ticket prices.
Basically, the era of Southwest being "the quirky airline with no seats" is ending because the financial reality of 2024 demanded it. They have to prove to Wall Street that they can turn that $7.4 billion in revenue into actual profit, not just a break-even point.
Your Next Financial Moves
If you’re tracking Southwest, keep an eye on the Q4 2024 capacity numbers. Management has signaled a 4% decrease in capacity for the end of the year. This is a deliberate "less is more" strategy. If RASM (unit revenue) turns positive as predicted, the stock might finally catch a break. However, if labor costs continue to outpace these revenue tweaks, the pressure from activist investors will only get louder.
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Also, watch the aircraft deliveries. Southwest is still stuck with an all-Boeing 737 fleet. With Boeing's ongoing delivery delays, Southwest’s plan to retire 35 older planes while taking only 20 new ones in 2024 puts a cap on how much they can actually grow even if demand spikes.