Southwest Airlines Co. dropped after warning that its first passenger fatality has reduced customer bookings.

Revenue from each seat flown a mile, a closely watched proxy for pricing power, will decline 1 per cent to 3 per cent in the current quarter, the discount carrier said in a statement Thursday. Southwest blamed as much as two percentage points of the decline on weak sales after an accident this month in which an engine exploded in flight, piercing the plane and killing a passenger.

The sober outlook contrasted with those of rival airlines, which have predicted increases in the revenue gauge of as much as 5 per cent. Southwest also faces pressures from aircraft retirements and fare battles with competitors. United Continental Holdings Inc. has been boosting seating capacity in some domestic markets where it faces off against Southwest.

The shares fell 5.3 per cent to US$51 before the start of regular trading in New York. Southwest tumbled 18 per cent this year through Wednesday, the biggest decline on a Standard & Poor’s index of major U.S. airlines.

“The revenue environment remains a challenge for Southwest as the company has seen competitive growth in their West Coast markets,” Helane Becker, an analyst at Cowen & Co., said in a note to investors. “Southwest is also flying a sub-optimal schedule due to their fleet transition, which continues to put pressure on yield.”


The carrier has moved to quickly shore up its fleet following the mass retirement of its oldest airplanes last year. But the gap in the interim has forced the airline to fly earlier and later each day -- unpopular times with customers. That contributed to the decline in fares, a pressure that is continuing this quarter.

Southwest said it has exercised options to acquire 40 more Boeing Co. 737 Max 8 aircraft, adding 10 planes to those the airline has already scheduled to take each year 2019 through 2022. Deliveries of five Max 8s will be accelerated to this year’s final quarter from 2019. Southwest expects to have 752 aircraft in its fleet by year-end, up from 717 at the end of March.

First-quarter profit rose to 75 cents a share, a penny more than the average of analysts’ estimates compiled by Bloomberg. Revenue increased 1.9 per cent from a year earlier to US$4.9 billion, while analysts expected US$5 billion. A reduction in its federal income tax rate “significantly” increased first-quarter net income, Southwest said.

The Dallas-based carrier is still working through the aftermath of the first passenger fatality in its 47-year history.


U.S. regulators ordered emergency inspections of certain CFM International Inc. engines after a fan blade broke loose during an April 17 flight from New York to Dallas. The engine explosion hurled shrapnel against the fuselage of the Boeing 737-700 and destroyed a window. A woman was partially sucked through opening and killed.

“We continue to cooperate with the National Transportation Safety Board’s thorough investigation to understand the cause of the accident,” Southwest Chief Executive Officer Gary Kelly said in the statement.

Southwest said Wednesday it had completed inspections of all 265 engines in its fleet covered by a Federal Aviation Administration emergency order. The airline didn’t comment on any findings.