On Tuesday, Susquehanna made adjustments to its outlook on Southwest Airlines (NYSE:LUV), reducing the price target to $25 from the previous $27 while maintaining a Neutral rating on the stock. The firm's analyst cited ongoing aircraft delivery delays as a significant factor influencing the airline's capacity plans for the fiscal year 2024.
Southwest has revised its expected growth in available seat miles (ASMs) for the fiscal year 2024 to approximately 4% year-over-year. This is a decrease from the 6% year-over-year growth anticipated in January and the 6% to 8% range projected in October. The airline now anticipates receiving around 20 Boeing (NYSE:BA) 737 MAX 8 aircraft in the fiscal year 2024, which is a reduction from the 46 expected in March and the initial estimate of 79 in January.
In response to the reduced number of aircraft deliveries, Southwest is also adjusting its fleet retirement plan. The company now plans to retire approximately 35 of its Boeing 737-700/800 aircraft during the fiscal year 2024, which is fewer than the 39 retirements projected in March and significantly less than the 49 retirements planned as of January.
Despite the challenges with fleet expansion, Southwest is seeking to support its capacity growth through increased gauge and utilization, with the expectation that the number of seats will likely lag behind ASMs through at least the first half of 2025. The analyst noted that with the airline's typical capacity growth model being disrupted until its orderbook stabilizes, there appears to be a more favorable risk-reward balance in larger network carriers such as Delta Air Lines (NYSE:DAL) and United Airlines.
InvestingPro Insights
Recent data from InvestingPro shows that Southwest Airlines (NYSE:LUV) holds a market capitalization of $16.06 billion and is trading at an adjusted P/E ratio of 18.52 for the last twelve months as of Q1 2024. Despite the revisions to the company's aircraft delivery and retirement plans, as highlighted by Susquehanna's analyst, InvestingPro Tips suggest that Southwest Airlines remains a prominent player in the Passenger Airlines industry, with analysts predicting profitability for the company this year. Additionally, the company has been profitable over the last twelve months, which may reassure investors of its financial resilience amid the current challenges.
InvestingPro data also indicates a revenue growth of 7.6% for the last twelve months as of Q1 2024, with a gross profit margin of 22.81%. These figures underscore the company's ability to generate income and manage costs effectively despite the logistics setbacks. For those interested in a deeper dive into the financial health and future prospects of Southwest Airlines, InvestingPro offers additional tips. There are currently 6 more tips available on InvestingPro, which could provide valuable insights for investors considering this stock.
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