Southwest Airlines Sees Positive Q4 Revenue Growth

Southwest Airlines has revised its fourth-quarter revenue guidance upwards due to robust holiday travel demand. However, despite the positive news, the recent rally in the company's stock price has come to a halt.

With a rise of 31% in the past month and 19% in December, Southwest Airlines shares pointed 2% lower ahead of the opening on Wednesday. Investors, who have been reaping the benefits of the low-cost carrier's guidance update, seemed to focus on a negative aspect.

In an update, the airline raised its fuel-cost guidance range from $2.90 to $3 per gallon to a new range between $3 and $3.10. Additionally, Southwest Airlines moderated its plans for capacity expansion beyond 2024.

While there have been many positives associated with Southwest Airlines, such as updates from other carriers like JetBlue Airways and positive holiday travel data, investors have already priced in these benefits.

During the Thanksgiving holiday period, airlines experienced a surge in travel demand as millions of people took to the skies. The Sunday after Thanksgiving even saw the busiest day in the history of U.S. aviation, with the Transportation Security Administration screening over 2.9 million passengers across the country's airports.

For the fourth quarter, Southwest Airlines now anticipates a year-over-year decline in revenue per available seat mile between 9% and 10%, which is towards the better end of its previous guidance range of a 9% to 11% drop.

The company stated, "Fourth-quarter 2023 travel demand and yields continue to be healthy. Leisure demand remains strong with record revenue over the Thanksgiving holiday period." Southwest Airlines expects to report record fourth-quarter operating revenue and passenger numbers.

Although the airline has maintained its capacity expectations for the first quarter of 2024, anticipating an increase of between 10% and 12%, it has revised down its goals for capacity growth beyond that year. Southwest Airlines now predicts low-to-mid single-digit available seat mile growth instead of mid-single-digit growth.