In recent news, Southwest Airlines (NYSE: LUV) experienced a significant drop in its stock value, plummeting around 15% in Tuesday's trading session. This decline came after the airline announced adjustments to its capacity plans and financial forecast for 2024, primarily due to anticipated delays in Boeing 737 MAX deliveries. The Federal Aviation Administration identified numerous issues with Boeing's 737 MAX production, with Boeing failing 33 out of 89 audits conducted by the FAA.
Southwest Airlines is now expected to receive 46 Boeing 737 MAX planes in 2024, down from the initial plan of 58. This capacity reduction is not unique to Southwest, as Alaska Airlines also indicated that its 2024 expansion plans could be affected.
Looking at the performance of LUV stock, it has seen a sharp decline of 35% from early January 2021 levels, currently trading around $30. Over the past three years, Southwest Airlines' stock has consistently underperformed the broader market, with negative returns of -8% in 2021, -21% in 2022, and -14% in 2023. In comparison, the S&P 500 posted positive returns during the same period.
Amidst the challenging market conditions, Southwest Airlines faces uncertainties related to high oil prices and elevated interest rates. Analysts suggest that LUV stock may have limited room for growth, with a valuation estimated at $31 per share, slightly above its current market price.
Southwest Airlines recently revised its Q1 2024 revenue projections, expecting a flat to 2% year-over-year increase, lower than the previous estimate. Factors such as reduced leisure passenger volume and higher fuel costs are anticipated to impact the airline's near-term performance.
Despite these challenges, Southwest Airlines reported a 10.5% year-over-year revenue increase in Q4, driven by a substantial rise in available seat miles. The company's adjusted operating margin also improved significantly compared to the prior year.
Investors reacted negatively to the revised forecasts, leading to a decline in LUV stock. As Southwest navigates through the current economic landscape, the airline's ability to recover and outperform the market remains uncertain.
