Why Southwest Airlines Lost Altitude Today

Southwest Airlines (NYSE: LUV) has not yet seen a rebound in demand for travel, disappointing investors who had been hoping for a quick turnaround.

Southwest shares fell as much as 4.5% when comments were made by the company's CFO before rebounding somewhat and trading down 1% as of 2:30 p.m. ET.

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Image source: Southwest Airlines.

Discretionary spending takes a dive

Airline stocks are highly cyclical in nature. When budgets get tight, it is easier to skimp on travel than the grocery bill, meaning airlines tend to see demand fall when the broader economy is under pressure.

Several airlines withdrew or scaled back full-year guidance during earnings season, complaining of a surprise collapse in demand late in the first quarter. There was some hope the collapse would be short-lived.

Southwest CFO Tom Doxey, speaking Thursday at a Wall Street conference, said, "We have not seen in the industry an inflection back" toward more robust demand. Doxey said unit revenue in the first quarter was about three points worse than what they had expected heading into 2025, and second-quarter unit revenue is trending toward about six points worse than what was expected.

That's not good news, and there is some reason for investors to worry it is a Southwest-specific issue.

A day earlier, United Airlines Holdings said it was seeing a "stable" revenue and booking environment heading into the busy summer travel season.

Is Southwest Airlines a buy?

Investors shouldn't make too much of the Southwest/United comparison, as they were slightly different questions, but Southwest could indeed be a standout to the downside.

The company is early in the process of revamping its business model, including getting rid of popular features, including free checked bags. Although Southwest said it has not seen a consumer backlash so far, it is possible consumers are booking elsewhere.

Even in the best-case scenario, Southwest is a company in transition during a dangerous period for the industry. Investors have every reason to be cautious as the summer travel season plays out.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Southwest Airlines. The Motley Fool has a disclosure policy.