Southwest Airlines (NYSE:LUV) shares nosedived by over 8% in the early trading session today after the air carrier reported a wider-than-anticipated loss for the first quarter and issued a disappointing financial outlook.
During the quarter, Southwest’s revenue improved by 10.9% year-over-year to a record $6.3 billion. However, the figure lagged expectations by $120 million. Moreover, its net loss per share of $0.36 came in wider than expectations by $0.02.
Challenging Trends
The quarter was marked by robust revenue trends but weak operational performance for Southwest. The $6.3 billion figure was a record Q1 revenue for the company, and it expects another all-time quarterly revenue record for the second quarter. Nevertheless, costs remain a challenge. A combination of higher compensation, maintenance, and repair expenses resulted in the company’s operating loss widening by 38.1% year-over-year to $393 million. In sync, its net loss for the quarter widened by 45.3% to $231 million.
To improve its performance, Southwest is banking on cost optimization, limiting hiring, and closing its operations at four airports. The airline expects to end 2024 with nearly 2,000 fewer employees than at the end of 2023. Meanwhile, lower aircraft deliveries from Boeing (NYSE:BA) are expected to impact the company’s performance this year.
Southwest’s Outlook Disappoints
Amid these challenges, Southwest now expects ASMs (Available Seat Miles) to grow by 4% in 2024, down from the previous estimate of 6%. The airline anticipates that it will end the year with 802 aircraft, compared to the earlier projection of 814 aircraft. Additionally, it has revised its full-year operating revenue outlook to a high-single-digit increase, down from the previous estimate of double-digit growth.
What Is the Stock Price Forecast for LUV?
Today’s price erosion comes after a nearly 26% jump in Southwest’s share price over the past six months. Overall, the Street has a Moderate Buy consensus rating on the stock, alongside an average LUV price target of $32.50. However, analysts’ views on the airline could see changes following today’s earnings report.
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