Southwest Airlines (LUV) on Wednesday said its third-quarter outlook had soured, following an increase in flight cancellations it attributed to the rise of the coronavirus delta variant. But airline stocks rose.
The airline said it had experienced a slowdown this month in close-in bookings — or flights booked closer to their departure time — and an increase in close-in cancellations. And it said those trends “are believed to be driven by the recent rise in COVID-19 cases associated with the delta variant.”
The company said that assuming coronavirus cases remain elevated, and current sales trends spill over into next month, its outlook for third-quarter operating revenues “has worsened by an estimated three to four points from its previous outlook three weeks ago, compared with third quarter 2019.”
Southwest said it expected third-quarter operating revenue to be down 15% to 20% compared to 2019 levels. And it said the pandemic’s impact “will make it difficult for the company to be profitable in third quarter 2021.”
The airline made the announcement after airline stocks spent much of the year on the mend. Southwest said it was profitable in July, after the pandemic caused massive losses for the airline industry.
The carrier also said last month that operating revenues were in line with its expectations. Leisure-travel passenger traffic and fares were both above levels seen in July 2019.
Low-Cost Carrier’s Warning
But U.S. coronavirus cases have soared this summer, as the more contagious delta variant spreads rapidly through the nation, particularly in parts of the country with low vaccination rates. Approved vaccines are effective against serious illness, researchers say. But breakthrough cases have still occurred.
Cowen analyst Helane Becker said in a research note that Southwest “won’t be the last to update guidance due to an increase in cancellations.”
Last week, Frontier Airlines (ULCC) said it had recently noted “softening in the level of bookings over seasonal norms that we believe is directly related to the increased Covid-19 case numbers associated with the delta variant.”
The ultra-low-cost carrier said it had adjusted the high end of its third-quarter net-income forecast to breakeven. The airline said that forecast gave it an expected adjusted net income margin range of zero percent to 5%.
Southwest Stock, Airline Stocks
Southwest stock rose 1.4% in the stock market today. Shares of the airline have been on a downtrend since April. The stock is below its 50-day and 200-day lines. Its relative strength line has fallen as well.
Shares have a Composite Rating of 30, of a best-possible 99, and an EPS Rating of 19.
Delta, in July, said it was “mindful of the risks that new variants pose to the pace of recovery.” And it said it would “stay very disciplined in restoring international capacity.” But CEO Ed Bastian said the carrier hadn’t seen a deceleration in demand looking out over the next two to three months.
United Airlines has said it will require its U.S. workers to get vaccinated against the coronavirus by Oct. 25. Southwest, American and Delta have held off on such a requirement, according to CNN.
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