Southwest Airlines, one of the largest low-cost carriers in the U.S., has raised its forecast for fourth-quarter fuel costs, citing higher crude oil prices and supply chain disruptions. The company said that it expects fuel to average $2.70 to $2.80 a gallon this quarter, up from its earlier estimate of $2.55 to $2.65. This is a significant increase from the average price of $1.45 per gallon that Southwest paid in 2020 due to the pandemic.
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The higher fuel costs could have a negative impact on Southwest's profitability and cash flow, as well as its ability to invest in new aircraft and technology. The company has already warned that it expects a net loss of $220 million, or $0.37 per diluted share, for the fourth quarter of 2022. It also lowered its revenue guidance for the quarter to down 10% to 15% from the same period in 2019.
However, Southwest also expressed optimism about its recovery in travel demand and unit revenue for the fourth quarter and beyond. The company said that it expects leisure travel to rebound strongly as more people get vaccinated and restrictions ease. It also said that it expects capacity to rise 12% from 2022, driven by new aircraft deliveries and fleet expansion.
Southwest is not alone in facing higher fuel costs and lower revenues amid rising oil prices and supply chain challenges. Other airlines have also warned about the potential impact of these factors on their financial performance and outlook. However, some analysts believe that Southwest has a competitive advantage over other carriers due to its low-cost structure, loyal customer base, and operational efficiency. They also expect Southwest to benefit from its strong balance sheet, liquidity position, and dividend policy.
