Southwest Airlines has revised its fourth-quarter earnings forecast downwards, attributing the adjustment to the recent U.S. government shutdown, which disrupted air traffic at major airports. The Dallas-based carrier announced on December 5, 2023, that it now expects earnings before interest and taxes (EBIT) of approximately $500 million for the October to December period. This figure marks a significant decline from the previous expectation of $600 million to $800 million.
The airline’s revised outlook comes in the wake of decreased demand caused by the shutdown, which temporarily impacted travel patterns across the country. In its statement, Southwest noted, “Following the temporary decline in demand related to the shutdown, bookings have returned to previous expectations.”
Impact of Air Traffic Control Challenges
The shutdown not only affected Southwest but also prompted Alaska Airlines, Delta Air Lines, and JetBlue Airways to issue similar warnings regarding their financial performance. A strained air traffic control (ATC) system played a crucial role in these disruptions. During the shutdown, ATC personnel went unpaid for several weeks, leading the Federal Aviation Administration (FAA) to implement a 10% capacity reduction at 40 of the largest U.S. airports.
Despite these measures, the FAA’s target was never fully realized. Staffing levels improved during the shutdown, allowing the reduction rate to stabilize at 6%. The capacity reductions began on November 7, 2023, and normal operations resumed approximately ten days later. Nevertheless, some airlines experienced delays in fully returning to regular service.
Looking Ahead
In addition to addressing financial impacts, Southwest Airlines has also expanded its international partnerships. Earlier this week, the airline announced its collaboration with German low-cost carrier Condor, marking it as its fifth international airline partner. This move reflects Southwest’s ongoing efforts to enhance its global reach and provide more options to its customers.
As the airline industry navigates the aftermath of the government shutdown, Southwest’s updated earnings forecast highlights the financial challenges that can arise from external factors. The situation underscores the interconnectedness of air travel and government operations, as well as the need for airlines to adapt to rapidly changing circumstances.
