Southwest Air stock drops on $60-million hit from U.S. government shutdown
Southwest Airlines Co.’s stock price slid after warning that 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 the impact would be $10 million to $15 million for Jan. 1 through Jan. 23. Uncertainty over whether there would be a second shutdown hurt demand.
“With more of first quarter under our belt now, and a higher percentage of March bookings in place, we feel like we are at the point where we can reasonably quantify the total impact from the shutdown,” Southwest said by email. Fares for bookings close to travel dates have been strong compared with last year, however, “so we are hopeful that the softness in demand is a temporary issue.”
Revenue for each seat flown a mile will rise 3% to 4% this quarter, the carrier said. It previously projected that the measure of pricing power would increase 4% to 5%.
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’s share price dropped 5.7%, to $54.41, on Wednesday, the biggest one-day decline since Oct. 25.
Southwest Chief Executive Officer Gary Kelly said government bookings — which are a “relatively small” but “meaningful” part of the airline’s business travel — were clearly hurt by the shutdown. The U.S. shutdown also delayed approval of the airline’s planned flights to Hawaii. The new service, which is expected to begin next month, will pressure profit margins by forcing the airline to discount early flights more than it had expected, Goldman Sachs analyst Catherine O’Brien said in a note to clients Wednesday.
The company, meanwhile, is 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 Assn. said Southwest was attempting to divert attention from safety issues.
Southwest had scrapped 519 flights Feb. 15 through Tuesday, according to FlightAware.com, although the total included flights grounded by weather. Another 442 flights were grounded Wednesday, with operations also affected by a snowstorm in the Northeast. The carrier on Tuesday added its Dallas maintenance center to those in Houston, Las Vegas, Phoenix and Orlando, Fla., that originally were covered by the alert.
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