Southwest Airlines and JetBlue Airways surprised the markets on Thursday when they gave optimistic earnings forecasts for the current fiscal quarter. They cited strong consumer demand despite inflation fears.
Southwest (ticker: LUV) stock had an early rise of 2.7%, trading at $43.09, while JetBlue (JBLU) climbed 3.7%, according to Barron’s.
The airline industry has seen a rally in the travel sector after the business was lifeless during the COVID-19 pandemic. Airlines were cutting flights to deal with reduced consumer demand and compensate for staff shortages that interrupted schedules.
Dallas-based Southwest dealt with complex labor problems, as employees rejected contract proposals over raises, bonuses, and overtime.
COVID sparked employee shortages that are still ongoing. Even though the carrier hired around 9,000 people before the pandemic, there remains a shortfall of about 1,000 employees in customer service.
The deficit led to Southwest cutting more than 20,000 flights from the upcoming summer travel season, as there were grave concerns that customer demand cannot be met.
Due to increased demand, the airlines have raised ticket prices. The move is partly due to higher fuel prices, which make up about 19% of the total operating costs.
Given increasing customer demand, it seems that Southwest and JetBlue will see an improvement in the second quarter. The big unknown is whether inflation, already at a 40-year high, will eventually lead to lower discretionary spending like travel.
Southwest Airlines currently expects operating revenue for the current quarter to rise 12-15% against its earlier forecast of 8-12%. The airline anticipates its available seating capacity to be down 7%.
JetBlue, currently competing with Frontier Group to acquire Spirit Airlines, believes its revenue will rise between 11-16%.
It anticipates seating capacity will be up 2-3% but said that troubles might occur industry-wide due to weather issues and traffic-control-related disruptions.