The Stock of Southwest Airlines Fell 10% After the Company Cut Its Revenue Guidance

Southwest Airlines Co. experienced a significant 10% drop in its stock price in premarket trading on Wednesday after the company revised its second-quarter revenue forecast amidst a fluctuating market environment.

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The Dallas-based airline, traded under the ticker LUV, now anticipates a decrease in operating revenue per available seat mile (RASM) by 4% to 4.5% for the quarter. This is a downgrade from their previous guidance, which projected a decline of 1.5% to 3.5%. The adjustment is attributed to the challenges in adapting their revenue management strategies to the current booking trends within this dynamic market context, according to a regulatory filing. Despite this revision, Southwest still expects to achieve a record-high operating revenue for the quarter.

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Southwest continues to forecast an 8% to 9% increase in available seat miles (ASM) and anticipates economic fuel costs per gallon to be between $2.70 and $2.80. The cost per available seat mile (CASM) is expected to rise by 6.5% to 7.5%.

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In their regulatory filing, Southwest highlighted that their operational performance in the second quarter of 2024 has been robust, with minimal flight cancellations. The completion factor, which measures the percentage of scheduled flights that are completed, has averaged approximately 99.5% quarter-to-date, despite adverse weather conditions in Texas and Florida.

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Looking ahead, Southwest projects a low single-digit increase in capacity for the third quarter, a decline in capacity in the low to mid-single digits for the fourth quarter, and an overall 4% increase in full-year capacity compared to the previous year.

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Southwest Airlines is scheduled to report its second-quarter earnings on July 25. In the first quarter, the airline disappointed investors with a wider-than-expected loss and revenue that fell short of expectations.

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CEO Bob Jordan has emphasized the company's commitment to implementing several changes to enhance performance, including reconsidering the long-standing open-seating policy.

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Year-to-date, Southwest’s stock has declined by 1.3%, whereas the S&P 500 index has seen a 14.7% increase.

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