Why Investors Grounded Southwest Airlines Stock in April

Eric Volkman, The Motley Fool

Mon, May 5, 2025, 2:01 AM 4 min read

• Investors fear that airlines could be early victims of a recession, should we enter one.

• Southwest pulled its profitability guidance in its latest earnings report, a move that didn't fill the market with confidence.

Southwest Airlines (NYSE: LUV) operates in an industry that's very exposed to a potential economic downturn.

As if to hammer home that point, in April while announcing its quarterly results the company withdrew a crucial guidance item. This made investors already skittish about the stock even more nervous, and they sold out of the carrier aggressively. Across that month, Southwest's stock price dived by nearly 17%.

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The overarching worry shared by many market players, not to mention economists, is that the Trump administration's trade war will land the country in a recession.

No one likes a recession, not least a company or sector that depends heavily on discretionary consumer spending -- exhibit A, the airline industry. The typical flight ticket is bought by a person with a bit of disposable income who wants to romp around somewhere distant from home for a while.

In a recessionary environment most people tighten up their spending, and nonessential items like travel are usually the first to be sacrificed in order to save money. We can say largely the same for businesses, another important traveler demographic for airlines.

It was in this environment of worry that Southwest published its first quarter results in April. Revenue crept up by less than 2% year over year in the period to just over $6.4 billion, broadly in line with analyst expectations.

Southwest narrowed its bottom-line loss but was still deep in the red at $77 million (first quarter 2024 shortfall: $218 million). Non-GAAP (adjusted) net loss also narrowed, to $0.13 per share from first quarter 2024's $0.36. That $0.13 represented a beat, at least, over the consensus pundit projection of $0.17.

What investors were focused on wasn't the trailing performance, but the company's decision to withdraw its full-year 2025 and 2026 profitability guidance (technically, earnings before interest and taxes, or EBIT).

"Amid the current macroeconomic uncertainty, it is difficult to forecast given recent and short-lived booking trends," it wrote by way of explanation.

That's a shame, as it was forecasting rather healthy EBITs of $1.7 billion for this year, and $3.8 billion next.