Shares in Southwest Airlines(NYSE: LUV) declined by 18.1% this week through early Friday morning trading. The setback occurred after Southwest management gave a disappointing update at the JPMorgan Industrials Conference.
Southwest disappoints the market
The bad news is arguably as much about Boeing(NYSE: BA) as it is about Southwest. Unfortunately, the quality control issues at the former are causing airplane delivery delays. Southwest now expects to receive just 46 deliveries of the Boeing 737-8 airplane in 2024 compared to a previous expectation for 737 MAX deliveries, which included 58 deliveries of the Boeing 737-8.
If you are wondering where the other deliveries went, the airline said it's assuming no 737-7 "aircraft deliveries and continues to assume no -7 aircraft are placed into service this year based on the current certification status."
The delays mean Southwest now plans to reduce capacity in 2024 and is "reevaluating all prior full-year 2024 guidance," which it intends to update investors on during the first-quarter results presentation on April 25.
Southwest's mixed first-quarter update
It's even more disappointing because the update on first-quarter trading conditions had plenty of positives. For example, management now sees available seat miles (ASM) up 11% in the first quarter, compared to prior guidance for a 10% increase. As such, management continues to expect record first-quarter operating revenue.
Meanwhile, "bookings for second-quarter 2024 are currently ahead of seasonally normal trends, and the Company expects to deliver all-time record operating revenues" for the quarter, according to Southwest's SEC filing.
On a more negative note, non-fuel cost per ASM (CASM) will increase by around 6% in the first quarter, compared to a prior estimate of 5%-6%. However, management believes the change in CASM expectations for the first quarter is neutral to the expectations for full-year operating expenses.
Image source: Getty Images.
Where to next for Southwest Airlines?
The delivery news is especially disappointing, given that Southwest is trying to grow its capacity and take advantage of a recovering commercial air travel market. That said, the stock should be set up to react well to any positive development in Boeing's production plans.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool recommends Southwest Airlines. The Motley Fool has a disclosure policy.
