Southwest Airlines beat earnings expectations in the third quarter and signaled strong leisure and business demand continuing in the fourth quarter.
The airline (ticker: LUV), the last of the so-called Big Four to report earnings, said it expected to generate "strong profits and margins" in the final quarter of 2022. The stock rose more than 4% in premarket trading.
The airline reported adjusted earnings per share of $0.50 and operating revenue of $6.22 billion in the three months ending Sept.30. Analysts were expecting adjusted earnings per share of $0.41 and revenue of $6.22 billion, according to FactSet data.
"Following record summer leisure travel demand, revenue trends remained strong in September 2022, bolstered by improving business travel trends post-Labor Day," CEO Bob Jordan said.
The company expects leisure and business demand to stay strong in the months ahead, seeing sequential improvement from the third quarter to the fourth, Jordan added.
However, the company said it "continues to experience inflationary pressures in fourth quarter 2022, in particular with higher rates for labor, benefits, and airports." Pilot staffing constraints could also limit the airline's fleet utilization for the majority of 2023, it added.
Southwest expects operating revenue to be between 13% to 17% higher in the fourth quarter compared to 2019 levels, despite capacity being set to drop 2%. That's better than the 9% rise currently expected by analysts.
Delta Air Lines (DAL), United Airlines (UAL) and American Airlines (AAL) were all optimistic over the future path of air travel demand when they reported earnings earlier this month. Delta got things off to a flying start, issuing upbeat guidance as business and international travel roared back to life in the third quarter.