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: Southwest stock dragged down by worse business-travel prospects

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Southwest Airlines Co. shares were among the few airline stocks in the red Thursday, dragged down by dim prospects for business travel.

Southwest
LUV,
-1.75%

earlier Thursday revised its third-quarter revenue forecast to 9% to 11% growth over 2019 levels, compared with previous guidance of 8% to 12% growth.

Also lower on Thursday were shares of ultra low-cost carriers Spirit Airlines Inc.
SAVE,
-0.91%

and Frontier Airlines’ Frontier Group Holdings
ULCC,
-1.41%
.
Delta Air Lines Inc.
DAL,
+2.66%

stock was among the top gainers of the day.

The air carrier said it was seeing “strong” revenue trends for the quarter, thanks to better-than-anticipated leisure travel and “strong” demand for travel during the Labor Day holiday weekend.

Southwest’s weakest point was business travel, however.

The quarterly outlook “looks mixed,” Stephen Trent at Citi said in a note Thursday. Southwest’s outlook on seat-mile cost excluding fuel costs was unchanged, which “would seem to be good news, considering market concerns about inflation.”

The carrier, however, mentioned weakness in business travel, and that decline is “running a little bit worse” than the downside that Citi has been tracking for all airlines, Trent said.

“Moreover, the overall tighter range in revenue growth comes on the heels of a competitor having just increased its own third-quarter revenue guide,” he said.

United Airlines last week raised its third-quarter revenue growth outlook, thanks to “strong” demand at the end of a “robust” summer.

See also: Here’s why airline stocks are taking off this week

United said it expects revenue to be about 12% above the same period in prepandemic 2019, compared with a previous growth forecast of about 11%.

Southwest sees business travel revenue for the quarter to be down 26% to 28% over 2019, compared with previous expectations of a 17% to 21% decline.

“On a more positive note, Southwest sees strong revenue trends in the fourth quarter,” Trent said.

Also positively, post-Labor Day corporate travel looks to be improving into September, analyst Sheila Kahyaoglu said in her note Thursday.

And Southwest’s “companion pass” promotion earlier this month is likely to heat up demand into 2023, Kahyaoglu said.

Southwest offered the companion passes for travel between early January and early March, usually a lull for leisure travel after the holiday period and before spring break demand.

“We see this as positive,” the Jefferies analyst said. “(Southwest) has used deals to spur travel and lock in the forward revenue curve and we see this as a further opportunity to do that and spur travel demand into the new year.”

Shares of Southwest have lost 13% so far this year, which compares with a loss of 18% for the S&P 500 index
SPX,
-0.29%

and 16% for the U.S. Global JETS ETF
JETS,
+0.96%

in the same period.

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