Southwest reinstates dividend; says no signs of slowdown in travel demand

Reuters | December 7, 2022

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By Rajesh Kumar Singh and Priyamvada C

CHICAGO (Reuters) -Southwest Airlines Co on Wednesday became the first major U.S. airline to reinstate its quarterly dividend, more than two years after suspending it in the wake of the coronavirus pandemic.

Chief Executive Officer Bob Jordan said the reinstatement reflects “the strong return in demand for air travel” as well as Southwest’s “solid” operating and financial performance since March.

A rebound in travel demand has helped major U.S. carriers return to profitability this year. Southwest is expected to post its strongest full-year profit in three years.

While mounting economic worries have clouded the outlook for consumer spending, the Dallas-based carrier said it has seen no signs of a slowdown in travel demand.

It expects strong leisure revenue trends to continue into the first quarter of next year. It also forecast an improvement in business travel.

Next year “is shaping up to be a very strong year with the opportunity to return to pre-pandemic profit levels,” Jordan said at the company’s investor meeting.

Shares of Southwest and other carriers, however, were down 4%-5% on Wednesday on growing risks of an economic recession in the United States.

Southwest said it wants to enhance returns to shareholders but declined to provide a timeline for resuming share buybacks.

As part of the federal COVID-19 relief package, airlines had been prohibited from paying dividends or buying back their shares. The ban, however, expired in September.

Southwest will pay a quarterly dividend of 18 cents per share to shareholders on Jan. 31. The dividend payout amounts to $428 million a year.

The move, however, drew a flak from its pilot union, which is demanding higher pay raises and better work rules in a new contract.

“With more than two-thirds of its labor contracts still open,…reinstating dividends just illustrates how far Southwest has veered from its path,” said Southwest Airlines Pilots Association President Casey Murray.

“We will be picketing on Wall Street today,” he added.

Southwest said it expects to have a deal on new labor contracts by the first half of 2023.

It mostly reaffirmed the outlook for the current quarter, but trimmed fourth-quarter its fuel cost forecast by about 5 cents per gallon.

The airline said it expects to receive 100 MAX aircraft from Boeing next year.

(Reporting by Rajesh Kumar Singh in Chicago and Priyamvada C in Bengaluru; Additional reporting by Nathan Gomes in Bengaluru; Editing by Sherry Jacob-Phillips, Anil D’Silva and Cynthia Osterman)


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