Delta and Southwest Say Demand Remains Strong While Budget Rivals’ Profits Get Hit

Delta and Southwest sought to reassure investors Thursday, following negative commentary from several airlines earlier in the week. All of them are confronting a spike in fuel prices, with labor and other costs up as well. And that’s going to hit the bottom line – though some will be impacted more than others.

Frontier was first to trigger worry following a big cut to its earnings forecast for the third quarter: It now expects to lose money at the operating level. Spirit’s latest outlook was even more alarming.

But on the revenue side, said Southwest’s CEO Robert Jordan, “We’re just not seeing the weakness.” The Dallas-based airline did see some unexpected booking softness in August, a development Jordan suggested might be related to schools opening earlier in the month. “Looking past August, we’re seeing very strong leisure demand and strong business demand.”

Delta too, sounded bullish notwithstanding a modest downward revision of its unit revenue forecast for the third quarter. It cited strength in markets like Boston and New York. Delta’s President Glen Hauenstein also said business demand was returning, and that early bookings for transatlantic markets for the upcoming winter “look very, very encouraging.”

Hauenstein, referring to the ominous guidance delivered by Spirit and Frontier, said “We were surprised to see some of the comments and some of the magnitude of those changes.”

Spirit had already been struggling with weak second-quarter results – see “Spirit Airlines: 5 Things That Went Wrong Last Quarter.“

Executives were speaking this week at a Morgan Stanley investor event.

Alaska Airlines lowered its third-quarter earnings guidance as well but still expects a healthy profit. Others have pointed to some modest demand weakening. American Airlines lowered its third-quarter operating margin guidance to 4-5%, from a midpoint of 9%. 

But in general, the strong demand and revenue outlook enjoyed across the industry this spring and summer appears to persist, according to Alaska, Delta Southwest Airlines, United, and others.

Correction: This story has been updated to correct the name of Southwest’s CEO.