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Southwest (LUV) Sees Slowdown in Revenue Trends, Shares Fall

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Southwest Airlines Co (LUV - Free Report) provided an update on its financial and operational trends, indicating that the carrier has witnessed a slowdown in revenue trends for November and December in recent weeks. Following this news, shares of the company declined 3% at the close of business on Nov 12.

The company, which has seen an uptick in leisure-travel demand over the past few months, is uncertain about the reason behind this softness in bookings but had “expected the election to impact trends”. Management also feels that it could be related to the recent spike in coronavirus cases.

However, the carrier’s estimate for year-over-year decline in November operating revenues remains unchanged at 60-65%. Load factor (percentage of seats filled with passengers) in the month is expected between 50-55%. Meanwhile capacity is predicted to decline approximately 35% year over year in the ongoing month.

Southwest expects operating revenues to decline 60-65% in December as well. Load factor is forecast to be in the range of 60-70% while capacity is estimated to fall 40-45% year over year next month.

Effective Dec 1, 2020, Southwest will start selling all available seats for flying.

For the fourth quarter, the carrier expects capacity to decline approximately 40% year over year. In January 2021, capacity is forecast to drop 35-40% year over year. The company maintains its forecast for economic fuel costs in the range of $1.2-$1.3 for the current quarter. Additionally, operating expenses, excluding fuel and oil expenses, special items, and profit-sharing expenses, are still expected to decline 20-25% year over year in the fourth quarter. Average daily core cash burn is expected to be in the range of $10 million-$11 million in the ongoing quarter, compared with the previous estimate of $11 million.

Zacks Rank & Key Picks

Southwest carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are Landstar System (LSTR - Free Report) , Expeditors International of Washington (EXPD - Free Report) and FedEx Corporation (FDX - Free Report) . While FedEx sports a Zacks Rank #1 (Strong Buy), Landstar and Expeditors carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Landstar, Expeditors and FedEx have gained more than 12%, 15% and 71% in a year’s time, respectively.

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