Southwest Airlines Co. on Tuesday had an optimistic outlook about leisure passenger traffic and fares, choosing to buy more Boeing Co. 737 Max jets, but rising costs tempered some of Wall Street’s excitement about the guidance.
shares rose nearly 1% in midday trading, a performance that matched the U.S. Global Jets ETF.
Southwest stock has gained about 27% this year, with the ETF up 19% in the same period.
The update looked “mixed,” Citi analyst Stephen Trent said in a note. There was “some improvements on the revenue front, but with the capacity recovery resulting in ex-fuel operational cost increases that are somewhat above Citi’s expectations,” he said.
Earlier Tuesday, the airline said its May revenue was down 35% from the same period in 2019, compared with a previous guidance range of down 35% to 40%, while load factor was 84%, compared with expectations of 85%.
Capacity was down 18% from 2019, in line with previous estimates. For June, Southwest now expects revenue to be down 20% versus a previous estimate of down 20% to 25%, the load factor outlook is unchanged at 85% and capacity is expected to be down 7% versus a previous estimate of down 6%.
Southwest said it was increasing its Boeing’s 2022 orders by 34 Boeing 737 MAX 7 planes, bringing the total to 234 firm orders.
“The improving demand trends supported the exercise of order options for fleet growth,” Jefferies analyst Sheila Kahyaoglu said in her note. Kahyaoglu kept her buy rating on Southwest shares.
Citi’s Trent sounded a more cautious note.
“Although the re-fleeting should help ex-fuel seat mile costs, the industry might have to work hard to balance between capacity and demand in a post-pandemic new normal,” Trent said. The analyst kept the equivalent of a hold rating on Southwest shares.
Southwest also said it recently received the second disbursement of about $926 million of payroll support funding under the American Rescue Plan Act of 2021, totaling a full $1.9 billion of expected payroll support.