Southwest won’t be the last airline to issue a profit warning, Wall Street says

Southwest won’t be the last airline to issue a profit warning, Wall Street says

Southwest Airlines Co. won’t be alone in warning investors that slow-going months have been made worse by concerns about the highly transmissible delta variant of the coronavirus that causes COVID-19, analysts said Wednesday. Southwest
earlier Wednesday warned of fewer bookings and an increase in cancellations in August driven by the delta variant of the virus and seasonal weakness, and said it would be unlikely to be profitable in the third quarter.

“Southwest is first, but won’t be the last to update guidance due to an increase in cancellations,” Cowen analyst Helane Becker said in a note. Becker forecast “a bulk of airline guidance updates” in September, “given the airlines will have had enough time measure the impact of rising COVID-19 infections and reassess demand across all segments.” Shares of major U.S. airlines were mostly lower on Wednesday, with Delta Air Lines Inc.
shares bucking the trend so far. Southwest stock was down 0.2% after steeper losses following the company’s announcement. See: U.S. COVID-19 case tally passes 36 million as more states seek face-mask mandates and plead with unvaccinated to get shots Southwest’s demand for Labor Day travel remains “healthy thus far,” Jefferies analyst Sheila Kahyaoglu said in her note Wednesday. Airlines reported relatively strong second-quarter earnings, in many cases brightened by a return of business travel. In recent days, however, some struck a more cautious tone due to the uncertainty swirling the industry with delta variant, which is currently the predominant coronavirus variant in the U.S. Read also: U.S. air-travel rebound stalls, Citi says “As schools reopen in the fall, the driver of incremental demand will shift from the leisure customer to the corporate customer,” Kahyaoglu said. Corporate customers will contribute to about 35% of Southwest’s total revenue, she said. “The most significant risk into the fall comes from the delta variant continuing to restrict access to offices, further pushing to the right a meaningful return of corporate travel,” she said. The U.S. Global Jets ETF
is holding on to a 3.4% advance for the year, compared with gains of around 18% for the S&P 500 index.

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