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
-
Americans Are Retiring Later: Will This Trend Last?Given a host of pressures to keep working, Americans are retiring later in life. Will regulatory and economic forces encourage you to work longer?
-
Trump’s Tax Cut Risks Your SNAP, Medicaid BenefitsTax Cuts The GOP budget blueprint could slash lifesaving programs for millions of U.S. households.
-
Can Trump Fire Powell? A Supreme Court Case Could DecidePresidential posts threaten to overwhelm decades of precedent and tradition, whatever the nine justices decide.
-
What Are AI Agents and What Can They Do for You?AI agents promise to be the next big thing in artificial intelligence, but what exactly do they do?
-
Should You Buy an iPhone Now Before Tariffs Hit?Looming tariffs can make an iPhone purchase seem urgent. Here's what to do if you need another phone but want to save money.
-
SRI Redefined: Going Beyond Socially Responsible InvestingNow that climate change has progressed to a changed climate, sustainable investing needs to evolve to address new demands of resilience and innovation.
-
Here's When a Lack of Credit Card Debt Can Cause You ProblemsUsually, getting a new credit card can be difficult if you have too much card debt, but this bank customer ran into an issue because he had no debt at all.
-
33 Stocks That Could Rally 50% or More This YearAnalysts say these S&P 500 stocks have at least 50% price upside over the next year or so.
-
Stock Market Today: Dow Drops 971 Points as Powell Pressure Ramps UpPresident Trump is increasing his attacks against Jerome Powell, insisting the Fed chair cut interest rates.
-
When Should You Hand Over the Keys — to Your Investments?The secret to retirement planning? "The best time to hand over the keys is before you’ve realized you need to hand over the keys."
