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Southwest warns on profits as Delta variant spurs cancellations

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By Abhijith Ganapavaram and Tracy Rucinski

(Reuters) -Southwest Airlines Co warned on Wednesday that the spread of the Delta variant of COVID-19 had hit bookings and increased cancellations, hurting its chances at profitability this quarter.

The rapid surge in cases of the variant has pushed U.S. hospitalizations to a six-month high, prompting governments in areas such as Hawaii to reimpose restrictions and threatening a recovery in travel demand.

Dallas-based Southwest cut its forecast for third-quarter operating revenue by three to four percentage points from its prior outlook issued just three weeks ago, the first major U.S. carrier to trim guidance as a result of the variant.

The profit-warning marked a U-turn from the airline's upbeat statement last month that it would remain profitable for the rest of 2021.

Last week, ultra-low-cost carrier Frontier Airlines also lowered its third-quarter forecast and warned the Delta variant was hurting demand.

While analysts expect other airlines to also revise guidance lower, Raymond James analysts noted expectations that new coronavirus cases may be peaking and soon begin a downward trajectory.

Shares of Southwest opened lower but were flat in morning trade. They have risen 9.7% this year on hopes of a recovery in travel demand, but underperformed the benchmark S&P 500 index's 18.1% rise.

The carrier maintained its unit cost outlook for the quarter.

Southwest had been one of the biggest beneficiaries of easing coronavirus curbs as it mainly caters to the domestic market.

But its home base of Texas, where Governor Greg Abbott has banned mask mandates and opposed COVID-19-related business restrictions, is among the U.S. states with the highest increases in new COVID-19 cases and hospitalizations.

(Reporting by Abhijith Ganapavaram in Bengaluru and Tracy Rucinski in Chicago, additional reporting by Sanjana Shivda; editing by Sriraj Kalluvila, Aditya Soni and Jonathan Oatis)