Shares of Southwest Airlines Co. (LUV - Free Report) have lost 22.2% so far this year, underperforming its industry's decline of 11.1%.
Why the Lackluster Price Performance?
Southwest Airlines has faced multiple headwinds this year. In April, a passenger on its flight (1380) died due to the mid-air engine explosion. This incident adversely impacted travel demand at Southwest Airlines, resulting in soft bookings.
Moreover, Southwest Airlines, like its fellow-airline operators Delta Air Lines (DAL - Free Report) , American Airlines Group Inc. (AAL - Free Report) and JetBlue Airways Corp. (JBLU - Free Report) , has been hit hard by the rise in oil prices.
This low-cost carrier issued a lackluster view for second-quarter unit revenues due to weak bookings and rising fuel costs. The company expects operating revenue per available seat mile (RASM) to decline around 3% year over year (the earlier guidance had called for a decline in the 1-3% range).
With fuel prices on the rise, the Dallas-based carrier trimmed its capacity (measured in available seat mile or ASMs) growth view. It now anticipates second-quarter capacity to increase approximately 3.5%. Earlier, the company had called for 3.5-4% growth in the metric.
Additionally, the company projects ASM in the low 4% range compared with its prior forecast in the low 5% range. Also, for the latter half of the year, ASM is anticipated to expand approximately 6% year over year, lower than its earlier view of a rise in the low 7% range.
Other Unfavorable Readings
The Zacks Consensus Estimate for second-quarter and full-year 2018 earnings moved south 14.7% and 9%, respectively, in the last 60 days. This reflects investor’s pessimism surrounding the stock.
Furthermore, the stock has a VGM Score of C, which highlights its unattractiveness. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores.
Such a score allows investors to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
Undoubtedly, the above negatives substantiate the company’s Zacks Rank #5 (Strong Sell).
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