Negative labour sentiment overshadows Southwest's positive outlook and favourable financials

Southwest Airlines remains reasonably positive about the demand environment in early 2016. But similarly to nearly every other US airline, Southwest is citing softness in yields as low oil prices appear to be making it difficult to gain sustained pricing traction in the US market. One unique factor for Southwest in 2016 is that the number of markets under development this year will be markedly lower than 2015, providing some level of stability in its network.

The airline's capacity in 2016 is dropping back to an expansion of 5% to 6%, from a 7% increase in 2015. But the the capacity increase planned for 2016 is still higher than the annual growth rates that Southwest recorded from 2012 to 2014. At the end of 2015, Southwest opted to adjust its order book, swapping out some Boeing 737-700 orders for higher density -800s, and placing an order for additional -800s. The company has also decided to accelerate the retirement of its 737 Classic fleet to simplify operations and improve its pre-tax operating performance.

For Southwest one hangover in 2016 is shaky relations with some of its labour groups. Its pilots recently picketed over drawn-out negotiations after rejecting a tentative deal in late 2015. Flight attendants at Southwest also rejected a deal in 2015, after two years of bargaining. Negotiations with both work groups are set to resume in early 2016, and it is not clear how long the latest round of talks with pilots and flight attendants will last.