Why Southwest Airlines Shares Are Diving Tuesday

Zinger Key Points
  • Southwest Airlines lowers Q1 guidance, attributing the decline to higher completion factors and reduced Boeing aircraft deliveries.
  • Economic Fuel Costs Per Gallon raised, hiring classes halted, but company anticipates return to profitability in March.

Southwest Airlines Company LUV shares are falling on Tuesday in the premarket session.

The company’s shares are tumbling after lowering its first-quarter guidance.

Southwest Airlines said it sees first quarter 2024 RASM to be flat to up 2%, significantly lower than the prior estimate of up 2.5% to 4.5%.

Approximately one point of the decrease is due to higher-than-expected completion factors in February and March, with the remainder primarily attributable to lower-than-expected close-in leisure passenger volume. 

Regarding the timing of expected aircraft deliveries, Boeing Company BA has advised Southwest Airlines to expect 46 737-8 aircraft deliveries in 2024, a reduction from the company’s previous expectation of 79 737 MAX aircraft deliveries, which included 58 -8 aircraft.

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“As a result of Boeing’s continued challenges, the company expects the delivery schedule to be fluid and, therefore, plans to reduce capacity and re-optimize schedules, primarily for the back half of 2024, which will likely result in at least a one point reduction to the Company’s full year 2024 capacity plans on a year-over-year basis,” Southwest Airlines said in a SEC filing.

Southwest Airlines now expects first-quarter 2024 CASM-X to increase approximately 6%, compared with its previous estimate to grow in the range of 5% to 6%, both year-over-year, primarily due to offsetting shifts in the timing between quarters of various spending, including salaries, wages, and benefits as well as maintenance expenses.

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Southwest Airlines sees Economic Fuel Costs Per Gallon as $2.95-$3.00 higher than the previous view of $2.70-$2.80.

Available seat miles for the first quarter is expected to be up ~11% compared with up ~10% issued previously.

However, Southwest Airlines has halted hiring classes for multiple workgroups, including Pilots and Flight Attendants.

The firm intends to end the year with headcount down on a year-over-year basis, compared with its previous expectation of flat to down, year-over-year. 

Based on current trends, the company expects a net loss in the first quarter of 2024; however, the company still expects a return to profitability in March.

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Price Action: LUV shares are trading lower by 8.38% to $30.95 in the premarket session on the last check Tuesday.

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