Back to top

Image: Bigstock

Southwest (LUV) Shares Decline 17% in 3 Months: Here's Why

Read MoreHide Full Article

Shares of Southwest Airlines (LUV - Free Report) have declined 17% in the last three months, primarily due to Delta variant woes weighing on the carrier’s operations and multiple flight cancellations during the summer travel period.

Earlier this month, the Dallas, TX-based airline had warned that rise in coronavirus cases induced by the Delta variant was apparently hurting bookings and causing an increase in trip cancellations. The carrier also reduced its third-quarter 2021 operating revenue guidance by three to four points from the previous outlook and said that it is doubtful whether it could be profitable in third-quarter 2021 as it had previously expected.

Multiple flight cancellations during the busy summer travel period due to labor shortages, inclement weather and technical glitches also caused the Southwest stock to shed value.


Back in June, Southwest’s announcement that its long-serving CEO Gary Kelly will step down in February 2022, also hit the stock. Kelly will be succeeded by company veteran Robert Jordan, who joined Southwest in 1988 and currently serves as the executive vice president, corporate services. The news of Kelly’s departure, who is a 35-year Southwest veteran and has been serving as the CEO since 2004, comes at a time when Southwest and other airline companies are preparing to recover from the pandemic-led woes.

With fuel expenses comprising a major chunk of airline expenditures, rising fuel prices are another setback to the company and might have caused shares to decline. As an evidence, fuel cost per gallon (inclusive of fuel tax: economic) rose 44.4% year over year to $1.92 in the second quarter. The airline estimates economic fuel costs per gallon in the range of $2.05-$2.15 for the third quarter, much higher than $1.23 reported in the third quarter of 2020. High fuel costs are likely to put pressure on the company’s already weak bottom line. Notably, Southwest has incurred losses in six consecutive quarters due to the coronavirus-led suppressed air-travel demand.

Zacks Rank & Key Picks

Southwest carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the airline space are Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (VLRS - Free Report) , SkyWest, Inc. (SKYW - Free Report) and Corporacion America Airports S.A. (CAAP - Free Report) . While ControladoraVuela and SkyWest sport a Zacks Rank #1 (Strong Buy), Corporacion America carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While shares of ControladoraVuela and Corporacion America have rallied more than 100% each in a year’s time, SkyWest shares have gained more than 36% in the same time frame.

Published in