Southwest's stock suffers worst day in 4 years amid leisure-travel weakness

By Tomi Kilgore

American Airlines stock drops after downbeat outlook for losses, while Alaska Airlines' stock rallies on upbeat outlook

Shares of Southwest Airlines Co. tumbled Tuesday, after the air carrier cut its revenue outlook, due primarily to lower-than-expected close-in leisure-passenger volume.

The company (LUV) also lowered expectations for aircraft deliveries from Boeing Co. (BA), leading to a reduction in capacity plans, flight schedule changes and a re-evaluation of plans for capital expenditures.

The updated guidance comes as Southwest, and a number of its rival air carriers, were presenting at the J.P. Morgan Industrials Conference on Tuesday.

Southwest's stock sank 13% toward a two-month low in morning trading. It was on track for the biggest one-day decline since it dropped 15.1% on March 12, 2020, at the height of the COVID-pandemic panic.

Southwest said it now expects first-quarter revenue per available seat mile (RASM) to be flat to up 2% from a year ago, compared with previous guidance for growth of 2.5% to 4.5%.

The company said about 1 percentage point of the guidance cut is because of higher-than-expected completion factors, while the rest is mostly due to "lower than expected close-in leisure passenger volume." Close-in volume refers to flights booked within 21 days of departure.

The company also expects costs per available seat mile (CASM) to be up about 6%, compared with a previous estimate of up 5% to 6%, amid higher expected fuel costs and the timing of expenses including labor costs and maintenance expenses.

And regarding expected aircraft deliveries, the company said it was advised by Boeing to now expect 46 737-8 aircraft to be delivered in 2024, down from a previous expectation of 79 aircraft. Southwest now expects no 737-7 deliveries, and continues to expect no 737-7 aircraft will be put into service.

"As a result of Boeing's continued challenges," Southwest plans to cut capacity and change flight schedules, mostly for the second half of 2024.

Boeing's stock shed 3.9% in morning trading.

"[T]he company is also reevaluating all prior full year 2024 guidance, including the expectation for capital spending, and plans to provide updated full year 2024 guidance in conjunction with the reporting of its first quarter 2024 financial results on April 25, 2024," Southwest said.

For the second quarter, bookings are ahead of normal trends and operating revenue is expected to reach record levels.

Meanwhile, shares of American Airlines Group Inc. (AAL) slumped 4.7% toward a seven-week low, after the airline provided downbeat bottom-line guidance for the first quarter, as fuel prices have "increased considerably" since initial guidance was provided in late January.

The estimate for the average fuel cost per gallon for the first quarter was raised to approximately $2.80 to $2.90 from $2.65 to $2.85.

As a result, the company said it now expects the adjusted per-share loss for the quarter to be "at the low end" of previously provided loss guidance of about 15 cents to 35 cents. The current FactSet loss consensus is 22 cents.

The stocks of Southwest and American Airlines were the S&P 500 index's SPX two biggest decliners.

Separately, Delta Air Lines Inc. (DAL) affirmed its earnings-per-share outlook of 25 cents to 50 cents for the first quarter and $6 to $7 for the full year, which compares with the FactSet EPS consensus for the first quarter of 36 cents and for the year of $6.45.

Delta also said it still expects first-quarter revenue to be at the "top half" of previously provided growth guidance of 3% to 6%, while the current FactSet revenue consensus of $12.50 billion implies 5.6% growth.

But Delta's stock still fell 2.1%.

And JetBlue Airways Corp.'s (JBLU) guidance for first-quarter revenue improved to a decline of 7.5% to 4.5% from a decline of 9% to 5%. The outlook for capacity also improved, to a decline of 4% to 3% from a decline of 6% to 3%.

The airline's estimate of the fuel price per gallon increased slightly to $2.93 to $3.03 from $2.87 to $3.02.

The company said it expects revenue initiatives to provide a $300 million boost to its topline in 2024. Those initiatives include launching "preferred seating" and other "ancillary fee refinements" and adjusting flight schedules from underperforming markets to "high-value leisure and visiting-friends-and-relatives" geographies.

JetBlue's stock shed 5.1%.

Elsewhere, Alaska Air Group Inc. (ALK) provided first-quarter loss guidance that was less than half what was expected, given "strong demand" and the fact that the air carrier's fleet of previously grounded Boeing 737-9 Max planes have returned to service.

The stock was a rare gainer in the sector, as it ascended 1.6% while the U.S. Global Jets ETF JETS slid 2.8%.

The company expects adjusted per-share losses of 55 cents to 45 cents for the current quarter, compared with the FactSet loss consensus of $1.16. The company said that before the groundings, capacity was expected to be up in the low single-digit percentage range from a year ago and there was a path of profitability to improve by more than 30%.

"Given recent strength in demand through spring break travel periods and continued recovery of West Coast business travel, we now expect an even greater year-over-year improvement in Q1 2024 profitability," the company said.

-Tomi Kilgore

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03-12-24 0958ET

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