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Southwest, North America’s third largest passenger airline in terms of passengers carried, just issued an investor update to provide new guidance on the total damage attributed to the US government shutdown. What wound up being the longest government shutdown in US history ended up costing Southwest more than anticipated. A lot more.
A day prior to the shutdown ending, Southwest shared that it expected a $10 to $15 million hit due to softness in the market. Fast forward a month, and a fresh 8-K filed with the SEC ups that estimate to $60 million. That’s more than double the $25 million hit reportedly absorbed by Delta. To date, neither United nor American has publicly stated how badly the shutdown impacted their results, though the former was confident in its 2019 outlook when speaking to analysts last month.
The filing states that since its initial estimate on Jan. 24, 2019, Southwest has “continued to experience softness in passenger demand and bookings as a result of the government shutdown.” While this has lowered its Q1 2019 estimate of operating revenue per available seat mile (RASM, or unit revenues) from 4-5% to 3-4% on a year-over-year basis, the airline is seeing “strength in close-in yields which is partially offsetting the impact of the shutdown.”
In lay terms, that’s Southwest confessing that it’s still planning to rake in plenty of cash (just not quite as much), and bookings are still strong. Cowen, an independent investment bank, seems to believe that logic. It is leaving its stock price target for Southwest unchanged at $58, though it did admit that the carrier’s cost outlook remains a challenge thanks to the build-out of its eventual Hawaii launch. Interestingly, Goldman Sachs has simultaneously downgraded Southwest to a sell, “cutting its 12-month price target to $54 from $66 due to the reduced profit forecast.”
All images by Marco Garcia / The Points Guy.
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