Southwest Drops as Virus Forces Airline to Reduce Sales Outlook

Southwest Airlines Co. fell after warning that a drop in bookings will dent first-quarter revenue, underscoring the coronavirus’s deepening impact on U.S. air travel.

“In recent days, the company has experienced a significant decline in customer demand, as well as an increase in trip cancellations,” the Dallas-based discounter said Thursday in a regulatory filing. It cited the coronavirus that is spreading in the U.S.

Southwest expects a $200 million to $300 million impact on operating revenue in the period. Revenue for each seat flown a mile, an industry benchmark, could drop as much a 2% from a year earlier, the airline said. The carrier previously forecast an increase of at least 3.5%.

The airline industry is reeling globally as the viral outbreak spreads beyond Asia and customers in Europe and North America avoid flying. United Airlines Holdings Inc. and JetBlue Airways Corp. said Wednesday they would trim flights to grapple with a swift drop in demand. Industry group IATA on Thursday almost quadrupled its estimate for revenue lost because of the outbreak.

Southwest fell 2.8% to $45.60 before the start of regular trading in New York. Its shares were down 13% this year through Wednesday, well short of the 22% slump for a Standard & Poor’s index of the biggest U.S. airlines. As a largely domestic carrier, Southwest initially hadn’t been disrupted as much as international airlines.

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Its revised forecast was released as Sanford C. Bernstein cut price targets across the industry.

“The stocks right now are caught between a spreading virus of unknown duration and the potential of an economic slowdown of unknown proportions,” Bernstein analyst David Vernon wrote in a note to investors. He cut Southwest’s target to $55 a share from $61.

A decline in fuel expenses at Southwest is expected to offset some of the negative impact on revenue from the virus. First-quarter fuel costs are projected to be 15 cents a gallon lower than the airline’s earlier outlook. Southwest estimated that its 2020 fuel expense has dropped almost $1 billion since the start of this year. Oil prices have dropped as the virus outbreak slowed economies worldwide.

Bookings were in line with expectations for the first two months of this year and company finances remain strong, Southwest said. Nevertheless, it warned that the duration and severity of the virus’s impact were difficult to predict.

Its capacity has declined, as well, mostly because of the global grounding of Boeing Co. 737 Max aircraft almost a year ago following two fatal crashes. But the airline projected that first-quarter available seat miles will slip 1% from a year earlier, instead of the 1.5%-2.5% decline previously forecast. It cited the mild winter for the revision. The carrier has 34 Max jets in its fleet.

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