Southwest Airlines' stock soars as revenue outlook raised, buybacks to resume

By Tomi Kilgore

Southwest's transformation plan includes assigned seating, redeye flights and $500 million in cost cuts

Shares of Southwest Airlines Co. took flight Thursday, after the air carrier raised its revenue outlook and indicated it would resume stock repurchases for the first time in more than four years.

The company, which is hosting its annual Investor Day Thursday, also provided some details on its transformation plan, which includes assigned and premium seating, redeye flights and $500 million in cost cuts.

"We're now ushering in a new era at Southwest, moving swiftly and deliberately to transform the company by elevating the customer experience, improving financial performance, and driving sustainable shareholder value," said Chief Executive Bob Jordan.

The stock (LUV) soared 10.5% in morning trading toward a six-month high, and to put it on track for its biggest one-day gain since it ran up 12.6% on May 26, 2020.

Southwest said it now expects third-quarter revenue per available seat mile to be up 2% to 3% from a year ago, compared with previous guidance of flat to down 2%.

The reasons for the improved outlook include re-accommodation of customers affected by other airlines' flight cancellations due to the CrowdStrike Holdings Inc. (CRWD) computer outage, improving industry demand trends and actions taken to improve revenue management.

The new $2.5 billion stock buyback program, replaces the $2 billion program set in May 2019 that still had $899 million repurchase authorization remaining.

The company said repurchases under the new program could be made in open market or private transactions at management's discretion. Previously, the company had suspended share repurchases since March 2020, at the start of the COVID-19 pandemic.

The new buyback program represents 14.7% of Southwest's market capitalization of $17.01 billion as of Wednesday's close.

Southwest also said it plans to start selling assigned seats in the second half of 2025, with the first flights under the new seating model operating in the first half of 2026. Premium seating will also be offered, as well as boarding with upgrades.

The company will keep its policy of two free checked bags.

The cost-cutting plan, expected to deliver $500 million in savings in 2027, will be achieved "by minimizing hiring, optimizing scheduling efficiency, capitalizing on supply chain opportunities, and improving corporate efficiency."

Among other financial guidance updates, the outlook for capacity growth of approximately 2% remains unchanged, while the outlook for economic fuel costs per gallon was lowered to $2.50 to $2.60 from $2.60 to $2.70.

The stock has now gained 8.6% year to date, while the U.S. Global Jets ETF (JETS) has advanced 9.5% and the S&P 500 index has rallied 20.7%.

-Tomi Kilgore

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-26-24 0951ET

Copyright (c) 2024 Dow Jones & Company, Inc.