Even as surveys indicate that North Americans are happy with their airlines, storm clouds still loom over some of the airline companies. Southwest Airlines (LUV) reported that it expects a 3% decline in revenue per available seat mile for its second quarter. This is due to lower bookings in the wake of a tragic incident in April involving one of its flights which suffered an engine explosion leading to the death of a passenger.
In April, the company had guided for revenue per mile to decrease between 1% and 3%. Following the incident, Southwest had halted its advertising temporarily which it resumed last month. The airline has not remained free of the incident even after the fatal engine explosion. In May alone, two of its flights had to make emergency landings due to technical difficulties. These incidents collectively seemed to have led to a decrease in passengers opting for flights.
The decrease in promotional activity is seen as the primary driver of lower bookings. Airlines deal with high fixed costs and are dependent on strong bookings to even out their operations. Although the drop in bookings is expected to hurt Southwest’s operating margins, experts believe it is temporary, and the airlines will pick up going forward.
The decrease in promotional activity is seen as the primary driver of lower bookings
Southwest has been offering many discounts on its tickets which has helped sales to pick up slightly, but it has not made up for the reduced advertisement efforts. Southwest has also narrowed its capacity expansion plans for this year compared to its earlier goals due to the rise in oil prices and revenue trends. The oil price hike is proving to be a thorn in the side of many airline companies. Even though it will take some time, there is optimism that Southwest’s bookings will pick up going forward.
Meanwhile, Australia’s Qantas Airways Ltd. said it would change its references to Taiwan, Hong Kong, and Macau as separate countries thereby complying with China’s requests that the three regions be listed as part of China. China is particularly sensitive to the way these regions are described and has targeted several public companies on this issue previously alongside sending official letters to several international airline companies asking them to adhere to these requirements or face action.
China’s actions have previously been criticized by the governments of Taiwan and the United States with the latter calling it Orwellian nonsense. The Australian government has now expressed its displeasure over the recent event with its Foreign Minister Julie Bishop hinting that private companies should be free to operate without political pressure. She also said the decisions relating to Qantas’ website were for its management to make.
The comments are not likely to go down well with the Chinese government which in turn stated that this demand was part of China’s laws and it had to be followed by firms that wished to do business with China. If in fact, this leads to any friction between Australia and China, it would once more affect the airlines which would further put pressure on the aviation industry which it does not need right now.
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