Southwest Airlines Co. warned investors on Thursday that a drop in bookings and an increase in cancellations will diminish their expected first-quarter revenue.
“In recent days, the company has experienced a significant decline in customer demand, as well as an increase in trip cancellations,” the Dallas-based airline said Thursday in a regulatory filing, citing the spread of coronavirus as a probable cause. Southwest expects a $200-300 million dollar dent, dropping as much as two percent — rather than the 3.5 percent increase of their original forecast.
According to the filing, the unpredictable nature of both the duration and severity of the global pandemic makes the future hard to see. Fortunately for shareholders, Southwest’s predominantly domestic income has taken less damage than many of its more internationally-inclined competitors. Still, Southwest fell 4.9 percent to $44.61 on Thursday morning, with shares down about 13 percent for the year.
“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 cutting Southwest’s target price from $61 to $55.
Southwest CEO Gary Kelly lamented the “very noticeable, precipitous decline in bookings” in an interview with CNBC’s Phil LeBeau on Thursday. “It’s really all of a sudden,” he said. When LaBeau asked whether Southwest would consider discounting flights to draw more traffic, Kelly seemed skeptical.
“I don’t know that it’s a price issue,” he said. “The economy is strong. People have money. They have the means to travel and to spend. This is they don’t want to fly, for the obvious reason.” Specifically, Kelly compared the public’s reaction to the terrorist attacks on September 11, 2001.
“9/11 wasn’t an economically driven issue for travel – it was more fear, quite frankly,” he said. “And I think that’s really what’s manifested this time. … It has a 9/11-like feel. Hopefully, we’ll get this behind us very quickly.”