Shares of Southwest tumble after carrier gives disappointing 4Q outlook for revenue ratio

DALLAS – Southwest is selling more tickets but may be cutting prices to do so, leaving investors in the airline rattled.

The airline’s shares fell 9 per cent.

Southwest Airlines Co., the nation’s fourth-biggest carrier, said Tuesday that revenue for every seat flown one mile will be flat to down 1 per cent in the fourth quarter compared with the same period last year. Just a month ago, the airline predicted a 1 per cent increase.

The airline said that traffic jumped 13.9 per cent in November compared with a year earlier, as passengers flew 9.7 billion miles. The average flight was 83.2 per cent full, a record for November and an increase from 80.1 per cent in November 2014.

With Southwest filling more seats, the potential decline in revenue per seat appears due to lower average fares. Prices have been falling this year on some routes as airlines take advantage of cheap fuel to increase passenger-carrying capacity with new flights and larger planes.

Raymond James analyst Savanthi Syth said that because of cheaper fuel, airlines didn’t reduce capacity when travel demand seemed weaker than expected early this year. Now capacity is growing faster than demand, and domestic fares in off-peak hours appear to have weakened since the end of October, she said.

Southwest shares fell $4.46 to close at $45.04. They began the day up 17 per cent this year, with about half the gain coming last week on falling oil prices. They closed up 6 per cent for 2015.

After the market closed, United Airlines said that its traffic rose 4.2 per cent in November from a year earlier. United did not disclose revenue per seat.

Shares of United Continental Holdings Inc., American Airlines Group Inc., and Delta Air Lines Inc. all fell about 3 per cent.