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Southwest Airlines Co. slid after saying the U.S. government shutdown hit sales harder than previously estimated.
The political stalemate that ended last month will reduce first-quarter revenue by $60 million as the aftereffects linger, Southwest said in a regulatory filing Wednesday. When the discounter reported earnings late last month, it estimated an impact of $10 million to $15 million for Jan. 1 through Jan. 23.
“The company has continued to experience softness in passenger demand and bookings as a result of the government shutdown,” Southwest said. Revenue for each seat flown a mile will rise 3 percent to 4 percent this quarter, the carrier said. It previously said the measure of pricing power would increase 4 percent to 5 percent.
The 35-day shutdown, which ended Jan. 25, caused security delays at airports and put some government travel on hold. But since Southwest’s service is largely domestic, it doesn’t have the same buffer from international flights as American Airlines Group Inc., Delta Air Lines Inc. and United Continental Holdings Inc.
Southwest dropped 4.5 percent to $55.10 at 9:39 a.m. in New York after sliding as much as 6.1 percent for the biggest intraday decline in three months. American fell 1.2 percent, while Delta and United slipped about 1.5 percent. Southwest had climbed 24 percent this year through Tuesday, the most on a Standard & Poor’s index of the five biggest U.S. airlines.
The standoff in Washington was “maddening,” Southwest Chief Executive Officer Gary Kelly said last month. “Everyone needs to be on notice and on guard that this shutdown could harm the economy and it could harm air travel.” He said that government bookings were clearly hurt by the shutdown. Southwest also was delayed in getting regulatory approval for planned flights to Hawaii.
Goldman Sachs downgraded Southwest’s stock to sell from neutral while slashing its price target to $54 from $66. The new service to Hawaii, which is expected to begin next month, will pressure profit margins by forcing the airline to discount early flights more than it had expected, analyst Catherine O’Brien said in a note to clients Wednesday.
“We now expect initial flights to have a one to one-and-a-half month selling window, putting more pressure on management to fill planes in a shorter time frame,” she said.
The demand weakness in the wake of the shutdown is being partially offset by continued strength in fares for bookings just before travel, Southwest said.
But the company is also grappling with what it called an “unprecedented number” of aircraft taken out of service for mechanical issues. The carrier said it is investigating the cause, including whether the groundings are related to ongoing talks with a labor union. The Aircraft Mechanics Fraternal Association said the airline was attempting to divert attention from safety issues.
“We will be investigating this current disruption and are exploring all possible remedies,” Chief Operating Officer Michael Van de Ven said. The carrier apologized to its customers for canceled flights and, in some cases “extremely long delays.”
Southwest had scrapped 519 flights Feb. 15 through Tuesday, according to FlightAware.com, although the total included flights grounded by weather. Another 404 flights are grounded Wednesday, with operations also affected by a snowstorm in the U.S. northeast. The carrier on Tuesday added its Dallas maintenance center to those in Houston, Las Vegas, Phoenix and Orlando that originally were covered by the alert.
–With assistance from Cecile Daurat and Ryan Vlastelica.
©2019 Bloomberg L.P.
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