Southwest Airlines Raises Q3 Revenue Forecast and Approves $2.5 Billion Share Buyback Plan

Shares of Southwest Airlines experienced a rise in premarket trading on Thursday after the airline adjusted its third-quarter outlook, forecasting an increase in revenue per available seat miles (RASM). The company now anticipates a 2% to 3% growth in quarterly RASM, a key indicator of pricing power, revising its previous expectation of being “flat to down 2%.”

In addition to this positive outlook, Southwest plans to resume a $2.5 billion stock buyback program, emphasizing its commitment to returning value to shareholders.

These announcements come amid efforts to reform the airline’s operations in response to pressure from activist investor Elliott Investment Management, which has been advocating for leadership changes following a series of disappointing financial results. Elliott’s investment in Southwest is estimated at about $1.9 billion.

During a recent presentation, Southwest highlighted that its growth initiatives are “well underway” and that these efforts are expected to add approximately $4 billion to cumulative earnings before interest and taxes by 2027.

CEO Robert Jordan faces increased pressure to restore the company’s long-term profitability. Southwest, once known for its 47 consecutive years of profit, has struggled to rebound from the impacts of the COVID-19 pandemic, even as the wider airline industry has recently seen a solid uptick in travel demand.

The airline’s passenger volumes have not yet returned to pre-pandemic levels, and delays in aircraft deliveries from Boeing have further impacted performance. Over the past 20 months, Southwest has lowered its outlook at least eight times.

Over the last three years, the company’s stock price has declined by approximately 40%.

Although Southwest has made some concessions to Elliott’s demands, the activist investor is set to hold a special shareholder meeting as early as next week to discuss its proposed changes. Nonetheless, Southwest has continued to express support for Jordan, asserting that he is the right leader to shepherd the company through a significant transformation.