Southwest Earnings: Delayed Jets and Underperforming Routes Crimp Capacity; Valuation Unchanged

On April 25, Southwest released first-quarter 2024 results and updated expectations for 2024, in which prolonged delays from Boeing and ongoing cost growth have caught up with the airline's aggressive capacity plans. With a revised 2024 capacity target of just 4% growth, largely because it will have fewer planes to deploy than anticipated, Southwest's unit costs are set to grow nearly 8%, making a full-year loss likely, in our view. While we are retaining our fair value estimate of $19 per share, our forecast includes thin margins and is predicated on eventual market share gains from a distressed lower-cost competitor.