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Why Shares of Southwest Airlines Dropped Today

Timothy Green, The Motley Fool

What happened

Shares of Southwest Airlines (NYSE: LUV) slumped on Wednesday after the airline updated its guidance for the first quarter of 2018. The company sees revenue per available seat mile, or RASM, coming in weaker than originally expected. The stock was down about 5.2% at 12:30 p.m. EDT.

So what

Southwest now expects first-quarter RASM to be roughly flat compared to the prior-year period. During the first quarter of 2017, the company booked a RASM of 13.23 cents, adjusted for a new revenue-recognition standard.

A Southwest Airlines plane.

Image source: Southwest Airlines.

The company had previously guided for a 1% to 2% year-over-year increase in RASM. Southwest blamed a competitive fare environment pressuring passenger revenue yields and lower-than-expected travel demand due to the timing of spring break holidays for the lowered guidance. The company also pointed to a suboptimal first-quarter flight schedule due to the retirement of its Boeing 737-300 Classic fleet.

On top of the guidance cut, another major storm in the Northeast could be contributing to the decline in Southwest's stock price.

Now what

Southwest tried to find some silver linings. The company still plans to grow RASM for the full year, with benefits expected in the second half from enhanced revenue-management capabilities. The company also said it was encouraged by cost trends. Operating expenses per available seat mile in the first quarter are expected to be flat to up 1% year over year.

Some of the reasons Southwest gave for the guidance cut were temporary issues, but there's no telling how long the current competitive fare environment will persist.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.