Why Southwest Airlines Shares Are Diving Tuesday

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.