Southwest Airlines – second quarter earnings overview (Part 2 of 12)
Second quarter top line growth
Southwest’s operating revenue increased by 8% to $5,011 million in 2Q14. Passenger revenue increased by 8.5% in 2Q14. As per the management, keeping other factors constant, 70% of the increase was due to higher passenger yields and 30% was due to a 2.3% increase in load factor. Apart from the company’s strategic initiatives, the increase in passenger revenue was also due to strong demand for air travel.
Freight revenues increased by 2.3% during the second quarter as the AirTran integration added new and maturing markets. The management expects the 3Q14 freight revenue also to be comparable to 2Q14.
Other revenue decreased by 2.3% due to decline in ancillary revenue. Ancillary revenue declined due to the adoption of Southwest’s customer-friendly fee policies for AirTran customers and the reduction of AirTran flights during the process of integration. As the integration process continues ancillary revenues are expected to decline in 3Q14 as well.
Indicators of customer satisfaction
As per the Air travel consumer report, for the first half of 2014, Southwest ranked second after Alaska in the least number of complaints per 1,00,000 enplanements. Southwest (LUV) had only 0.57 complaints per 1,00,000 enplanements compared to Delta’s (DAL) 0.81, JetBlue’s (JBLU) 1.51, American’s (AAL) 2.18 and United’s (UAL) 2.93. In terms of flight operations, although its on-time arrival rate was relatively low at 71.4% in 2Q14, it has improved from 69% in1Q13. Among these peers, Delta and Southwest had the lowest flight cancellations in June. However in 1H14, Southwest’s mishandled baggage reports per 1,000 passengers was very high at 4.51 compared to its peers.
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