Shares of Southwest Airlines Co. LUV plunged 14.8% on Mar 12, closing the trading session at $28.76. The downside was owing to the unfavorable fuel price guidance provided by Southwest for the first quarter and its plans to reduce 2024 capacity due to production delays at Boeing BA.

Notably, LUV has raised its first-quarter 2024 economic fuel costs per gallon guidance to the range of $2.95-$3 (prior view: $2.70 to $2.80).High fuel costs due to an escalation in oil price are a bane and are likely to hurt Southwest Airlines' first-quarter results. As fuel expenses represent a key input cost for any airline player, the uptick in these costs will naturally hurt LUV’s bottom line in the first quarter. LUV expects to incur a net loss in first quarter 2024.

Additionally, cost per available seat mile (CASM, excluding fuel, oil and profit-sharing expenses, and special items) is now anticipated to increase 6% in the first quarter from the comparable period in 2022 (prior view: increase 5-6%).

Interest expense is now expected to be $65 million (prior view: $62 million) in the first quarter.

Apart from these rise in expenses, LUV is also weighed down by lesser-than-expected aircraft deliveries from Boeing. Southwest Airlines’ management stated that it was advised by Boeing to expect 46 737-8 jets in 2024 compared with the earlier stated 79 737 MAX jets, which included 58 MAX 8 planes. Further, Southwest Airlines does not expect any Boeing 737 MAX 7 planes to get delivered this year. LUV continues to assume that no 737 MAX 7 plane will be placed into service in 2024 based on the current certification status.

Based on Boeing's continued challenges, LUV plans to reduce capacity and re-optimize schedules for the second half of 2024. This might reduce LUV’s 2024 capacity plans by one point on a year-over-year basis. LUV is reexamining all its previously provided 2024 guidance and aims to unveil the updated 2024 guidance concurrent with its first-quarter 2024 financial results, which are scheduled to be released on Apr 25, 2024.

Shares of Southwest Airlines have lost 3.3% against the industry’s 1.5% growth in the past three months.

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Despite the aforementioned headwinds, LUV is optimistic about the future and remains focused on making changes to its operating plan to achieve its long-term financial target to deliver after-tax return on invested capital well above the weighted average cost of capital.

On the contrary, LUV is enjoying solid first-quarter 2024 operational performance so far and fewer flight cancelations in late January. Managed business trends continue to strengthen sequentially, which aligns with expectations. Overall, demand remains stable.