FORT WORTH -- Southwest Airlines said its third-quarter profit fell 33 percent as the carrier flew more passengers who paid lower average fares.
The Dallas-based carrier reported a net income of $388 million, down from $584 million in the third quarter of 2015. Revenue also dipped, down 3.4 percent to $5.13 billion.
"We benefited from low fuel prices and record third-quarter traffic levels in a competitive fare environment," said Southwest Chief Executive Gary Kelly. Southwest paid $2.02 per gallon of jet fuel, down 8.2 percent in the third quarter.
Southwest said it carried 4 percent more passengers in the quarter but the average fare declined 4.8 percent to $147.55.
The airline's fares also have been pressured by increased competition in its markets and by industry capacity that's expected to be up by about 5 percent for all of 2016, Kelly said.
"There's a lot of competition on the West Coast, East Coast and every spot in between," he said. "It's not isolated to one competitor or one region. It's a great deal for consumers."
The carrier's quarterly results included $24 million in expenses related a computer system failure in July that forced the airline to cancel hundreds of flights and stranded thousands of passengers. The airline said the failure cost the carrier $55 million in lost revenue.
Excluding one-time accounting items, Southwest said its net income was $582 million, or 93 cents a share, beating Wall Street analyst earnings estimates of 88 cents.
However, investors were unhappy to hear Southwest's forecast that unit revenue in the fourth quarter will likely decline 4 percent to 5 percent. Unit revenue is revenue divided by available seat miles.
"Southwest is the only airline to report that it is seeing no sequential improvement in unit revenue performance," said Cowen and Co. analyst Helane Becker in a morning investor research report.
The gloomy forecast may cause investors to "question the domestic pricing recovery," Julie Yates, an analyst at Credit Suisse Group AG, said in a note to clients. Other carriers recently have said that they are seeing signs of improvement in unit revenue, which has been depressed for more than 18 months across the industry as growth has outpaced demand.
Shares of Southwest fell $3.55, or 8.5 percent, to close Wednesday at $38.40.
The carrier said it planned to slow its network growth in 2017 and expects to increase its capacity by less than 4 percent in 2017.
"We will continue to manage our growth prudently in light of the revenue environment and increasing fuel prices," Kelly said.
Information for this article was contributed by Mary Schlangenstein of Bloomberg News and David Koenig of The Associated Press.
Business on 10/27/2016