Southwest Airlines (LUV) stock is up 10% after the U.S. carrier raised its third-quarter revenue guidance and announced a new $2.5 billion stock buyback program.
Management made the announcements at the discount airline’s annual investor day, and also outlined changes to its business model as it seeks to boost its finances and share price. In terms of guidance, Southwest said it now expects unit revenue to rise 3% in the current third quarter. That was up from a previous outlook that called for a decline of as much as 2%.
Southwest also said that Bob Fornaro, a well-respected airline industry veteran who previously led Spirit Airlines (SAVE), will join its board of directors. Fornaro knows Southwest well having previously worked as a consultant to the airline. Southwest also recently announced it was adding assigned seating and extra legroom to its flights in an effort to attract fliers and boost its revenue.
Southwest Responds to Pressure from Activist Investor
The raised guidance and stock buyback were announced a day after the airline said it planned to save money by reducing its number of flights into Atlanta, Georgia and eliminate about 300 pilot and flight attendant positions. All of the changes at the carrier come as Southwest faces growing pressure from activist investor Elliott Management.
Having taken a big stake in LUV stock, Elliott Management has been agitating for change at the airline, including new senior executives and board members. While Southwest CEO Robert Jordan has held onto his job so far, the company’s Executive Chairman Gary Kelly recently said he would leave the airline by the end of 2025.
Southwest’s management team also reiterated at the investor day event that it will retain its long-standing policy that allows customers to check two pieces of luggage for free.
Is LUV Stock a Buy or Sell?
Southwest Airlines stock has a consensus Hold rating among 10 Wall Street analysts. That rating is based on three Buy, six Hold and one Sell recommendations assigned in the last three months. The average price target on LUV stock of $26.75 implies 14.59% downside risk from current levels.
