Southwest Airlines (NYSE:LUV) declined sharply in pre-market trading after the airline lowered its guidance for the second quarter. The company stated that so far in the second quarter, its operational performance has continued to be strong with “minimal cancellations.”
LUV’s Q2 Outlook
In the second quarter, Southwest expects its operating revenue per available seat mile (RASM) to decline between 4% and 4.5% compared to its prior forecast of a drop in the range of 1.5% to 3.5%. The company’s RASM expectations were lowered due to challenges in adapting to current booking patterns in a changing macro environment. However, LUV still anticipates that there will be a record operating revenue for the second quarter of 2023.
Southwest defines RASM as its total operating revenues divided by the available seat miles.
LUV reiterated its prior Q2 forecast, with available seat miles (ASM) likely to be in the range of 8% to 9% and economic fuel costs estimated to be between $2.70 and $2.80 per gallon. However, the company does anticipate that its scheduled debt repayments will increase to $9 million from its previous outlook of $7 million, while interest expenses are likely to rise by $1 million to $63 million.
Is LUV a Good Buy Now?
Analysts remain sidelined about LUV stock, with a Hold consensus rating based on three Buys, 10 Holds, and two Sells. Over the past year, LUV has declined by more than 10%, and the average LUV price target of $27.56 implies a downside potential of 3.33% from current levels.
