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.
Sign up for Kiplinger’s Free E-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
-
Buffered ETFs for a Rocky MarketBuffered ETFs provide protection during market downturns, but in exchange, your gains are capped.
-
Time to Spring-Clean Your Finances: A Financial Professional's Four Steps to Tidy Them UpA midyear review of everything from spending to saving, with adjustments as needed, can set you on track to financial security. Plus, don't forget to check in on your workplace benefits.
-
Why a Law Firm Secretly Recording Client Conversations Is Wrong (and Illegal)A law firm that has been recording client conversations without the clients' knowledge or permission and has threatened employees if they speak out faces legal and ethical challenges.
-
Stock Market Today: Markets Discount Another U.S. DowngradeAfter Friday's closing bell, Moody's followed Standard & Poor's and Fitch and cut its rating on U.S. government debt.
-
Donating Complex Assets Doesn't Have to Be ComplicatedIf you're looking to donate less-conventional assets but don't know where to start, this charity executive has answers, such as considering a donor-advised fund (DAF) for its tax benefits and ease of use.
-
What's Next for Stocks After a Chaotic SpringA chaotic tariff policy buffets investors looking for clarity on the economy and inflation.
-
Think a Repeal of the Estate Tax Wouldn't Affect You? WrongThe wording of any law that repeals or otherwise changes the federal estate tax could have an impact on all of us. Here's what you need to know, courtesy of an estate planning and tax attorney.
-
In Your 50s? We Need to Talk About Long-Term CareMany people don't like thinking about long-term care, but most people will need it. This financial professional recommends planning for these costs as early as possible to avoid stress later.
