Southwest Airlines (LUV) caught Wall Street off guard Wednesday when the air carrier reduced its revenue guidance for the second quarter.
In a filing with the Securities and Exchange Commission (SEC), Southwest said it now expects revenue per available seat mile (RASM) – a key sales metric in the airline industry – to decline 4% to 4.5% in Q2, compared with its previous outlook for a drop of 1.5% to 3.5%.
"The reduction in the Company's RASM expectations was driven primarily by complexities in adapting its revenue management to current booking patterns in this dynamic environment," Southwest said in the filing.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Southwest also said it expects higher fuel costs of $2.70 to $2.80 vs its prior estimate of no change. Additionally, it raised its Q2 outlook for operating expenses per available seat mile, excluding fuel and oil costs, from flat to an increase of 6.5% to 7.5%.
Despite the lowered revenue outlook and increased expenses guidance, the company "continues to expect an all-time quarterly record for operating revenue in second quarter 2024."
Today's news comes just weeks after activist investor Elliott Investment Management revealed a $2 billion stake in Southwest. Elliott plans to engage with the management team of Southwest to push for changes to reverse the airline's recent underperformance, and it may have more ammunition following the Q2 guidance shift.
Southwest is the second major airline to cut its second-quarter outlook in the last 30 days. On May 28, American Airlines (AAL) said it expects RASM to decline 5% to 6% in the second quarter, compared with its previous outlook for a drop of 1% to 3%, as Kiplinger previously reported.
Is Southwest Airlines stock a buy, sell or hold?
Southwest initially fell out of the gate Wednesday, but was in positive territory by lunchtime. Longer term, the industrial stock has declined nearly 16% over the past 12 months.
It's not unsurprising, then, that Wall Street is on the sidelines when it comes to the LUV. According to S&P Global Market Intelligence, the average analyst target price for LUV stock is $26.36, roughly 8% below current levels. Additionally, the consensus recommendation is Hold.
Financial services firm Argus Research downgraded LUV stock to Hold from Buy back in May, citing several issues facing the airline.
"With employee costs high and aircraft deliveries delayed, the road to recovery is likely to take longer than anticipated," Argus Research analyst John Staszak wrote in a May 24 note. "Southwest will also require time to accelerate revenue growth and improve its network."
Related Content
-
Risk Is On Again, Dow Jumps 381 Points: Stock Market TodayThe stock market started the week strong on signs the government shutdown could soon be over.
-
Does My Car Insurance Cover Rental Cars?Is it safe to decline the extra coverage car rental companies offer you when booking? Here's what you need to know.
-
Risk Is On Again, Dow Jumps 381 Points: Stock Market Today
The stock market started the week strong on signs the government shutdown could soon be over.
-
I'm an Investment Adviser: Here's Why You Should Resist a Zero-Down MortgageWhile it's certainly enticing, a zero-down mortgage comes with significant risks, especially if home values decline or you want to refinance.
-
I'm Embarrassed to Ask: What Is a Life Insurance Trust?Life insurance trusts, particularly irrevocable life insurance trusts (ILITs), can minimize estate taxes and protect your heir's inheritance.
-
Are Your Employees Quietly Cracking? How to Repair the Cracks Before Everything BreaksSome employees who are unable to change jobs due to economic conditions are doing only the bare minimum, leading to decreased work quality and team morale.
-
Headed for the Retirement Red Zone? This Eight-Step Game Plan Helps to Avoid FumblesThese strategies help safeguard your nest egg and ensure long-term financial success during the five years before retirement and the five years after.
-
I'm a Financial Planner: This Is How You Can Get Started With RMDsThe IRS will come knocking for its share of your tax-deferred retirement savings when you hit 73, but planning ahead for RMDs will ensure you're ready.
-
How Will You Replace Your Paycheck in Retirement? A Financial Adviser's Tips on Income PlanningBills don't stop once you retire — and you can't expect your Social Security checks to cover them all. Don't risk running out of money. Instead, make a plan.
-
From Pets to Paintings: The Little Things That Can Cause Big Estate TroubleSentimental items might have little monetary value, but their disposition can cause hurt feelings. Talking about who wants what and labeling items can help.
