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Southwest Withdraws 2020 View on Coronavirus-Led Low Demand

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Southwest Airlines Co. (LUV - Free Report) has withdrawn its 2020 guidance as coronavirus concerns are evolving and weighing heavily on air travel demand. The company is seeing a massive fall in passenger bookings and a significant rise in close-in trip cancellations for March as well as the second quarter of 2020. In fact, the carrier recently witnessed several days of net negative bookings, mainly for March and April, implying that the airline had more cancellations than bookings.

Southwest’s load factor (percentage of seats filled by passengers) was approximately 67% month-to-date through Mar 15. Of late, this key metric is trending lower at 50%. Given the large drop in bookings and a massive spike in cancellations, the airline anticipates the revenue scenario to further worsen in the remainder of March and the second quarter of 2020, as the pandemic spreads.

To limit the damage, the carrier will reduce available seat miles (ASMs or capacity) by at least 20% for the period between Apr 14, 2020 and Jun 5, 2020. These capacity cuts are in addition to the pre-existing schedule reductions due to the Boeing 737 MAX groundings. The carrier is also taking substantial cost-cutting measures, such as a freeze on hiring and giving voluntary leave options to employees. It is also looking to slash capital expenses, discretionary spending and all other non-essential costs. This Dallas, TX-based low-cost airline will also suspend share buybacks upon completion of the current share repurchase authorization.  

Some of the other carriers to have taken similar cost-reduction measures are United Airlines (UAL - Free Report) , Delta Air lines (DAL - Free Report) and Alaska Airlines, the subsidiary of Alaska Air Group (ALK - Free Report) .
Shares of Southwest have plunged 31.8% since the beginning of February due to the deep crisis.


Zacks Rank

Southwest carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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