Southwest revises August guidance, expecting an unprofitable 3Q21 – Market React 

Southwest Airlines today lowered its revenue guidance for the month of August, fueling concerns that the Delta variant could nick its earnings trajectory going forward, according to two sources following the situation. Sources added that they expect the magnitude of the disruption to be shorter compared to the prolonged lockdown that took place in early 2020. But the revised forecast represents a U-turn from just a few weeks ago when Southwest said business was booming.  

Southwest announced today that it is unlikely to be profitable in 3Q21 due to slowing bookings and an increase in cancellations in August driven by the fast-spreading Delta variant, according to SEC filings.  

The airline carrier expects 3Q21 revenue to worsen by three to four percentage points from its previous outlook of down 15% to 20% compared to 3Q19,  assuming that COVID-19 cases will remain elevated in the near-term and current August revenue trends continue into September.  

Southwest added that August and September are less impacted by holiday travel, except Labor Day weekend, which will provide a headwind for the company in the third quarter.  

For July, the company booked revenue in line with the company’s expectations, driven by strong leisure travel and higher fares compared to July 2019.  

The company now expects operating revenue to be down 15% to 20% in August compared to August 2019. The company previously guided revenue to be down 12% to 17% for the same period.  

As of 9 August, the company had USD 16.9bn of cash.  

Southwest’s USD 2bn 5.125% senior unsecured notes due 2027 traded today at 117.282 to yield 1.897%, compared to trades at 118.502 to yield 1.702% last week, according to MarketAxess.  

The company’s equity traded as low as USD 50.04 per share today before recovering to USD 51.11 per share and a USD 30.24bn market cap, unchanged from yesterday’s close.

2021 Debtwire

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