Southwest cuts growth forecast on government shutdown pain

[February 20, 2019]   By Ankit Ajmera

(Reuters) - Southwest Airlines Co cut its forecast for first-quarter revenue per seat mile on Wednesday, citing weak passenger demand and a $60 million hit to first-quarter sales from the longest partial U.S. government shutdown.

The more than month-long hiatus in U.S. government decision-making prevented the country's fourth-largest airline from launching its new route to Hawaii and led to widespread delays at airports.

Southwest had said previously that it expected a $10 million to $15 million impact on revenue in the first three weeks of January.

On Wednesday, it quadrupled that for the full quarter and cut its growth estimate for unit revenue to a range of 3 percent to 4 percent from an earlier range of 4 percent to 5 percent.

Shares of the company, which has also been cancelling flights in recent days due to a conflict with maintenance staff and weather issues, fell nearly 5 percent in early trading, with a Goldman Sachs "sell" recommendation for investors adding to the pain.

Though the company has now received permissions for test flights to Hawaii, Goldman Sachs analyst Catherine O'Brien argued the shutdown would result in a shortened selling window for the airline, forcing it to discount fares heavily.

"Most of the company's schedule is published eight months in advance and we would have expected a three to six month selling window for its Hawaii flights," O'Brien wrote in a note, downgrading the stock to "sell" from "neutral".

Southwest Airlines planes are seen in front of the Las Vegas strip, Nevada, United States April 23, 2015. REUTERS/Lucy Nicholson/File Photo

"We now expect initial flights to have a one to one and a half month selling window, putting more pressure on management to fill planes in a shorter time frame," she added, cutting price target on the stock to $54 from $66.

Southwest shares were last down 4.1 percent at $55.30.

The company said on Tuesday it would be investigating a doubling of the number of planes grounded with mechanical problems in recent days as it continues talks with its mechanics union on a new contract that have been ongoing since 2012.

Flight cancellations by Southwest accounted for roughly 24 percent of the nearly 800 total flights canceled across the United States on Tuesday, according to flight-tracking service FlightAware.com.

About half of the cancellations were related to unscheduled maintenance issues but the airline said it had yet to calculate the impact of the groundings on its results.

(Reporting by Ankit Ajmera and Rama Venkat in Bengaluru; Editing by Anil D'Silva)

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