FILE- In this July 19, 2018, file photo Southwest Airlines aircraft sit at the terminal at Ronald Reagan Washington National Airport in Washington. Southwest Airlines Co. reports earnings Thursday, Oct. 25. (AP Photo/Mike Stewart, File)Airlines have figured out how to extract more money from passengers, and they will need it to cover rising costs for their own fuel, labor and other expenses.
Not long ago, investors demanded that the airlines boost prices, even if it meant reducing flights to create a shortage of seats. Now they are obsessed with controlling expenses.
They punished Southwest Airlines Co. on Thursday after the carrier warned about a surprisingly large increase in costs next year. Southwest reported a 16 percent increase in third-quarter profit on higher revenue, beating expectations, but the shares dropped more than 8 percent in afternoon trading.
On the other hand, American Airlines Group Inc. reported that its profit plunged 48 percent from a year ago because it failed to fully pass on $750 million in higher fuel prices to consumers. Yet American’s shares climbed 8 percent after company executives laid out a plan to reduce spending, boost revenue, and grow earnings next year.
All four of the largest U.S. airlines saw higher revenue in the third quarter than a year ago, and revenue per seat, a stand-in for average prices, is rising. Empty seats are hard to find. United Airlines President Scott Kirby called it “one of the best revenue environments we’ve ever seen.”