Southwest Airlines Lower Despite Guidance Boost

Southwest Airlines Inc. (LUV) is trading lower despite raising Q4 2021 revenue guidance in reaction to strong Thanksgiving traffic and higher-than-expected leisure bookings that have defied Omicron-induced travel fears. The carrier now expects quarterly revenue to decline 10-15% compared to prior expectations for a 15-25% decline. Revised estimates of $4.86 to $5.15 billion marks an improvement of $210 to $500 million compared to previous guidance.

Millions Tuning Out Pandemic Decrees

The stock posted a 52-week low at the start of December in reaction to fears that new travel restrictions would hurt the industry’s embryonic recovery. It’s bounced about three points since that time but hasn’t mounted previously broken support, indicating the selling wave that started in October remains fully intact. This weak performance makes perfect sense, with business travel delayed into 2022 as a result of the Delta outbreak and unknowns regarding Omicron.

The airline industry is benefiting from the decline in crude oil prices, which will also lower jet fuel costs. In addition, millions of folks have tuned out government pandemic decrees, for better or worse, and are committed with getting on with their lives despite the elevated risk. As a result, robust air travel bookings, especially in the United States, should continue into 2022 as long as the Biden administration doesn’t deliver a death blow through new restrictions.

Wall Street and Technical Outlook

Wall Street consensus stands at a ‘Strong Buy’ rating based upon 12 ‘Buy’, 3 ‘Hold’, and no ‘Sell’ recommendations. Price targets currently range from a low of $48 to a Street-high $75 while the stock is set to open Wednesday’s session about $15 below the median $61 target and $3 below the low target. This depressed placement highlights chronic investor caution as a result of multiple pandemic waves and the reluctance of corporations to send their employees back into the friendly skies.

Southwest Airlines topped out in the low 60s in 2017 and failed breakout attempts in 2018, 2019, and early 2020. It fell to a 6-year low during March 2020’s pandemic decline and bounced, stalling at long-term resistance for the fourth time in March 2021. The selloff since that time bounced at the 50% rally retracement last week but long-term sell signals will remain intact until the stock remounts broken support between 47 and 51. That’s unlikely to happen until we get closer to the second quarter of 2022.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.