Why Southwest Airlines Stock Is Falling Today

What happened

The high-profile meltdown Southwest Airlines (LUV -3.17%) experienced over the December holiday season impacted the company’s fourth quarter a lot more than analysts had predicted, causing results to miss expectations. Investors don’t like surprises, and shares of Southwest were down 5% as of 11:27 a.m. in the wake of the company’s Q4 report.

So what

We knew going into earnings season that Southwest had a difficult quarter. A winter storm that hit much of the United States during the holiday travel period caused a system meltdown at the carrier, leading to the cancellation of more than 16,000 flights. In early January, Southwest updated its guidance for Q4 as a result of the storm. But analysts still underestimated the impact.

Southwest reported a loss of $0.38 per share in the quarter, significantly worse than the $0.09-per-share loss that analysts had forecast, on revenue of $6.17 billion that slightly missed expectations. The airline said that the “operational disruption” that occurred in December impacted results by about $800 million before taxes.

Southwest is still trying to pick up the pieces and figure out what went wrong.

“We have swiftly taken steps to bolster our operational resilience and are undergoing a detailed review of the December events,” CEO Bob Jordan said in a statement. “In addition, our board of directors has established an operations review committee that is working with the company’s management to help oversee the company’s response.”

Now what

Southwest anticipates posting a loss in the first quarter, which is historically the quietest period of the year for airline stocks, but the company has seen an uptick in demand heading into March and the beginning of spring break season.

The airline is hardly the first to run into operational issues, and if past experience is any indication, consumers have a short memory when it comes to events like this, and traffic typically rebounds rather quickly. But Southwest has positioned itself as a more customer-friendly airline, and it remains possible that consumer blowback could be pronounced due to Southwest’s unique status in the industry.

There is already a lot at stake heading into Southwest’s first-quarter earnings presentation in April. Until we know more, it appears a lot of investors would rather watch from the sidelines.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Southwest Airlines. The Motley Fool has a disclosure policy.

Source: https://www.fool.com/investing/2023/01/26/why-southwest-airlines-stock-is-falling-today/