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Southwest Airlines (LUV) Shares Decline on Bleak Update

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Shares of Southwest Airlines (LUV - Free Report) declined 1.5% on Dec 16 to $45.73 per share following its grim projection for December 2020 and January 2021. The alert sounded by this Dallas-based carrier is hardly surprising as the air-travel demand scenario continued to be lackluster following the recent spike in coronavirus cases in the United States.

Notably, Southwest Airlines, which has been seeing a modest uptick in leisure-travel demand over the past few months, witnessed a slowdown in bookings during November. Moreover, trip cancellations increased in the weeks prior to the Thanksgiving holiday period.

Sadly, the softness in bookings due to low leisure passenger demand persisted in December as well. The company expects this downtrend to continue into the first month of 2021 as well.

In an SEC filing, management stated that operating revenues last month declined 63% on a year-over-year basis despite being benefited by three or four points as the Thanksgiving holiday phase fell entirely in that period. Load factor (% of seats filled by passengers) in the month was 48%. Capacity (measured in Available Seat Miles) plunged approximately 35% in November. Average daily cash burn in the same time frame was roughly $13 million.

The company expects operating revenues to slump 65-75% in December. Visibly, the current projection is worse than the earlier expectation in the 60-65% band, reflecting primarily the slowdown in air-travel demand. Moreover, December operating revenues are expected to be negatively impacted by seven to eight points due to the holiday shift to November 2020. Load factor in the current month is now expected in the 60-65% range (earlier estimate: 60-70%). December capacity is expected to contract between 40% and 45%.

For the December quarter, capacity is still expected to decrease roughly 40% year over year. Additionally, the company continues to expect fourth-quarter fuel price in the range of $1.20-$1.30 per gallon compared with $2.09 in the year-ago period. The carrier also continues to expect operating expenses excluding fuel and oil expenses, special items and profit-sharing expenses to drop 20-25% year over year in the December quarter. Average daily cash burn in the final quarter of 2020 is estimated to be roughly $12 million, comparing unfavorably with the previous estimate in the $10-$11million band. The downside reflects the weakness in leisure-travel demand and bookings in addition to the surging trip cancellations.

Operating revenues for January are also estimated to plummet in the 65-75% range. Load factor in January is expected in the 45-55% range. Both January and February capacities are expected to fall between 40% and 45%.

Notably, Southwest Airlines, which currently carries a Zacks Rank #3 (Hold), is not the only carrier to issue a drab forecast in the wake of decelerating air-travel demand.  Fellow carriers like American Airlines (AAL - Free Report) , United Airlines (UAL - Free Report) and JetBlue Airways (JBLU - Free Report) too provided dull updates due to the slowdown in air-travel demand.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

 

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