Southwest (NYSE:LUV) stock is down 3% today, adding on to 12-month declines of more than 30%. It is safe to say that LUV and its airline peers have had a rough year.
Airline stocks continue to struggle as experts cut their expectations for economic growth. One reason for this environment is higher-than-expected inflation numbers that came out today. In response, the Federal Reserve will likely keep hiking interest rates, a move which will hurt growth-focused equities.
Southwest faces these macroeconomic challenges as well as ones specific to its industry. Higher fuel costs and labor shortages are hampering airlines right now.
Today, Southwest announced a key plan designed to turn this narrative around. However, it appears that it was not enough to change the direction for LUV stock.
LUV Stock Drops on Capital Improvement Plan
Today, Southwest announced a rather sweeping plan to update its aircraft. This plan, totaling approximately $2 billion, will bring a series of features of the company’s planes which consumers may cheer.
These improvements include:
- Improved Wi-Fi connectivity aboard Southwest’s planes
- Onboard power ports for devices, at every seat
- Larger overhead bins
- A wider range of refreshments.
- New fare categories for flyers
- Additional shelf-service capabilities
Overall, for flyers, these enhancements ought to be well-received. However, for investors, it’s the capital outlay that some may not be so fond of. Given the amount of debt Southwest and its peers have piled on during the pandemic, as well as higher interest rates on that debt right now, perhaps now’s not the time to be putting capital to work.
On the other hand, bulls may assert that making these upgrades now may be beneficial. Southwest could gain market share on its core routes and would avoid putting capital to work at even more disadvantageous times.
Today at least, investors with a more bearish lens are influencing LUV stock. If this pays off in the long term remains to be seen.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
