Southwest Airlines (NYSE:LUV) has not been faring well in the news lately. Its share price hasn’t done much better. While LUV stock is up 3.7% on Thursday, the stock fell 6% on Tuesday and more than 5% on Wednesday.
For the week, shares are still down more than 7%, while the stock works on its fourth straight weekly decline. In that stretch, LUV stock has suffered a peak-to-trough decline of 20%.
Driving this week’s decline? A wave of canceled flights.
While Delta Air Lines (NYSE:DAL), United Airlines (NASDAQ:UAL), American Airlines (NASDAQ:AAL) and others struggled with a massive storm front that rolled into the holidays, it had an outsized impact on Southwest’s operations.
Southwest Airlines canceled another 2,357 flights on Thursday. That’s 58% of its entire schedule and accounts for more than 95% of the total canceled U.S. flights on the day.
The day before, Southwest canceled more than 2,500 flights, roughly 62% of its planned flights. That’s as the other major airlines all canceled less than 40 flights each.
On Monday, it canceled almost 2,900 flights, or approximately 70% of planned flights, and thousands more from the weekend. The total is now over 13,000 since Dec. 22.
Transportation Secretary Pete Buttigieg said: “I have made clear to their executives that our department will hold Southwest accountable for making things right with their customers and employees.”
Those comments come as the federal government looks to investigate the matter.
Southwest Cancelation Impacts on LUV Stock
This wouldn’t be a story right now if the other major airlines were going through a similar fiasco amid a persistent storm. However, that’s not the case. The weather has calmed down and the others have returned to mostly normal operations.
Yet, Southwest continues to lag behind its peers and LUV stock is taking a deserved hit as a result.
While this isn’t some nail-in-the-coffin event for Southwest, it will surely ding the bottom line as the company is not only missing out on immense revenue, but it will also take a hit on profits as a result.
For instance, in October 2021, Southwest had to cancel more than 2,000 flights between Oct. 8 and Oct. 13. That resulted in a $75 million hit for the company.
CEO Bob Jordan, who took the helm in February 2022, said: “We’ve outrun our tools.” In other words, the company’s outdated technology combined with the way Southwest operates its routes has led to what management has called, failing to keep up with “cascading events.”
Even before this mess began, LUV stock was under selling pressure. Despite strong holiday travel trends, investors were likely selling over worries of a recession. Indeed, while air travel demand has been strong, a recession will have a negative impact on airlines.
That would be a problem for all airlines, not just Southwest. However, this latest mess does create more problems for LUV stock in the short term.
On the date of publication, Bret Kenwell 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.
