Southwest Airlines (LUV) shares take a dip in pre-market trading after slashing its second-quarter revenue guidance based on trends in consumer spending and travel bookings. The Morning Brief's Seana Smith and Brad Smith examine the low-cost airline operator's stock movements in response to its guidance

Southwest is expected to report second-quarter earnings results on July 25.

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This post was written by Luke Carberry Mogan.

Video Transcript

Time for some trending tickers here.

Let's kick it off with Southwest.

You're looking at declines of nearly 5% the stock falling after the company slashed its revenue guidance for the second quarter.

Now Southwest is now projecting a drop of as much as 4.5% in revenue per available seat mile.

That's an adjustment from the previous expectations of 1.5 to 3.5% decline.

So now they're expecting a larger decline here.

The company saying that this is primarily driven from by complexities in adapting its revenue management to current booking patterns in this dynamic environment.

They also went on to say that the company continuing to expect an all time quarterly record for operating revenue in the second quarter of 2024.

But again, a lot of this coming down to demand ability to meet demand.

We know when it comes to what is available in terms of planes and supplies there.

That has been a critical issue here for many of these airlines over the last couple of course, and really ultimately what it means for meeting some of those initial projections in the second half.

Of next year.

And of course, looking ahead to 2025 but again, a lower guidance here is clearly taking a hit with the stock.

So a lot of people asking just ultimately whether or not this is a Southwest specific issue or if this is something that is also signals issues elsewhere within the airline space.

Yeah, one of the low low cost carriers here, perhaps this should have been anticipated to a certain extent from some investors out there, especially if you continue to see economic data prints like we did in CP I where airfares were actually continuing to decrease, continuing to decline.

So that is one point that I would actually continue to remind people about is that some of the economic data had already showed this um in the in the tape if you will for Southwest Airlines and some of the other low cost carriers here.

What's also worth noting here is that it's not gonna affect the ninth consecutive quarter that they were projecting of record revenue.

They noted that within this filing here, um the company expects second quarter uh revenue per available seat mile to decline in the 4% to 4.5% range as we were mentioning here.

But they're also noting that this is not going to impact the expectation of an all time quarter for or all time record, quarterly record for operating revenue in the second quarter of 2024.

This is something that they had talked about in their most recent uh earnings call as well.

And so that's not gonna be impacted however, shares uh certainly taking it on the chin at least here this morning.

Um And then the other thing to really continue to keep in mind here is some of the fluctuations that they could see in routes that consumers are uh expressing more propensity to travel to.

And weather plays a huge factor in that too.

And so even as we're kind of looking across the airline industry right now and many of the airlines in a few weeks and be closing the books on their quarters, the the heat waves that we're seeing across the country that could have another impact on where you do see travel cancellations, booking cancellations or even pushing those out even further here too.

So, uh that's one thing to consider, especially as we get the outlooks when they do report earnings for this uh current quarter as well.