Wall Street Is Unhappy With Southwest Airlines, American Airlines After Q2 Earnings: But What’s Retail Thinking?

Retail sentiment soured for Southwest Airlines and American Airlines after the firms reported their quarterly earnings. Let’s take a look at what did not work for the airlines this time.

1. Southwest Airlines: The firm reported a 46.3% decline in its second quarter net income at $367 million while stating that it is taking urgent and deliberate steps to mitigate near-term revenue challenges and implement longer-term transformational initiatives. Operating revenue came in at a record $7.35 billion, in line with the Street estimate while earnings per share (EPS) came in at $0.58, higher than an estimate of $0.52.

Meanwhile, the revenue per available seat mile (RASM) decreased 3.8% year-over-year (YoY). Following the results announcement, shares of the firm fell over 6% in Thursday’s pre-market session but stabilized during market open. Retail sentiment soured following the significant decline in profits with the sentiment meter trending in the bearish territory (38/100) supported by high message volume. What is noteworthy is the fact that the firm’s third quarter forecast has not done anything to alleviate the negative sentiment. Southwest Airlines said it expects third quarter unit revenue to be in the range of flat to down 2% on a year-over-year (YoY) basis with capacity up roughly 2% YoY.

2. American Airlines: Shares of the airline fell over 3% in Thursday’s pre-market trading after the firm said it expects full-year adjusted earnings per share to come in between $0.70 and $1.30, which is lower than the forecast of $2.25 to $3.25 a share made in April. The latest guidance stands below a Street estimate of $1.10 to $2.60.

“American has taken aggressive action to improve its revenue performance, however, the company’s previous sales and distribution strategy will continue to impact its revenue performance and earnings through the remainder of the year,” the firm said. Following the announcement, retail sentiment was trending in the bearish territory for the stock (29/100) supported by extremely high message volumes.

Meanwhile, the airline reported an adjusted earnings per share of $1.09 compared to a Street estimate of $1.06. The firm reported a record quarterly revenue of $14.33 billion as compared to a Street estimate of $14.4 billion.

American Airlines clarified that the firm has taken swift and aggressive action to reorient its sales and distribution strategy in ways that continue to be customer-centric, while addressing feedback from corporate and agency partners. Earlier, the airline’s plan to push for more direct sales instead of third-party bookings had reportedly angered many travel agencies.

Photo Courtesy: Forsaken Films on Unsplash

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