By Shares of Southwest Airlines Co. experienced a drop on Wednesday after the company adjusted its third-quarter outlook for a significant revenue measure. This adjustment comes as close-in bookings for the month of August fell short of expectations.
Stock Performance
Southwest’s stock (LUV) slumped 3.1% in morning trading, reaching a three-month low. Its peers, on the other hand, showed mixed performance. Over the past five days, Southwest’s stock has declined by 6.3%, and it has plummeted by 23.9% since reaching a seven-month high at $39.18 on July 11.
Close-In Bookings Disappoint
Southwest Airlines disclosed in an 8-K filing with the U.S. Securities and Exchange Commission that while overall leisure travel demand remains strong, the airline’s close-in bookings for the month of August were not as expected. Close-in bookings refer to flights booked within 21 days of departure.
Revised Outlook
As a result of the disappointing close-in bookings, Southwest has revised its third-quarter estimate for revenue per available seat mile (RASM). The revised outlook now anticipates a decline of 5% to 7% compared to the previous year. The previous guidance had indicated a decline of 3% to 7%.
Business Trends and Future Expectations
Despite the setback in close-in bookings, Southwest noted that managed business trends are performing in line with expectations. The company also expects an improvement in corporate travel during the third quarter of 2023 compared to the second quarter of the same year.
The airline remains optimistic about its record third-quarter operating revenues and maintains its guidance for third-quarter capacity growth of approximately 12%.
Disruptions Due to Extreme Weather
In addition to the challenges posed by close-in bookings, Southwest Airlines has faced around 1,400 flight cancellations in the third quarter due to extreme weather-related disruptions. These disruptions include hurricanes Hilary and Idalia, as well as the Maui wildfires. However, despite these setbacks, the company remains on track for its anticipated capacity growth.
Increase in Fuel Costs for Southwest and United Airlines
Southwest Airlines recently increased its estimate for fuel costs per gallon for the third quarter. The company now expects fuel costs to range from $2.70 to $2.80 per gallon, up from the previous estimate of $2.55 to $2.65 per gallon. Similarly, United Airlines Holdings Inc. also raised its fuel cost outlook, citing a 20% increase in jet fuel prices since mid-July. United now expects fuel costs per gallon to range from $2.95 to $3.05, up from the previous estimate of $2.50 to $2.80.
Despite the increase in fuel costs, United maintained its outlook for third-quarter operating revenue growth of 10% to 13% and for capacity to be up about 16%. This news has resulted in a 1.0% rise in United’s stock during morning trading, following a four-day losing streak that brought it to a three-month low on Tuesday.
Alaska Air Group Inc., another major air carrier, also experienced a decline in stock prices recently. However, unlike Southwest and United, Alaska Air reported that close-in bookings remained strong in August. Nevertheless, the company also raised its estimate for third-quarter fuel costs, with expectations now ranging from $3.15 to $3.25 per gallon, compared to the previous estimate of $2.70 to $2.80 per gallon.
Alaska Air revised its capacity growth guidance to an increase of about 13%, up from the earlier range of 10% to 13%. The company also narrowed its revenue growth outlook to 1% to 2%, compared to the previous guidance of flat to up 3%.
In the stock market, American Airlines Group Inc. saw a 1.4% increase in shares, while JetBlue Airways Corp. experienced a decline of 4.1%, and Delta Air Lines Inc. saw a slight increase of 0.4%. The U.S. Global Jets ETF was down 1.1%, while the S&P 500 index gave up 0.8%.
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