Southwest enjoys revenue benefits from credit card deal; labour issues force early 737 Classic exit

Comparing Southwest Airlines' unit revenue trends with the rest of the US industry is difficult due to the benefits the company is enjoying from a new credit card agreement forged in 2015. On a total unit revenue basis, Southwest posted a flat performance in 1Q2016 and expects very modest growth in 2Q2016, which is the last quarter where it will enjoy gains from the credit card deal.

Southwest's average fare and yields during 1Q2016 reflect the competitive pricing environment that lingers in the US domestic market. Few are venturing to predict when pricing traction will return, including Southwest. The company does, however, believe that it can weather what it has claimed to be an aggressive industry build-up of capacity.

Southwest's projected capacity growth of 5% to 6% for 2016 remains unchanged. The airline will increase ASMs in 2017 and 2018, but that increase could be slower than in 2016 due to the airline's decision to accelerate the retirement of its Boeing 737 Classics by a year to 2017. The accelerated retirement was driven by training complexities, and an inability by Southwest and its pilots to reach a deal on segmentation of the Classics. Contract talks between Southwest and its pilots have dragged on for nearly four years, and remain under the guidance of a national mediator.