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Southwest shares close lower on Wednesday, company revises down cash burn forecast for second quarter

Southwest Airlines Co (LUV) on Wednesday revised down its average core cash burn forecast for the second quarter by $1 million per day, since a recovery in leisure travel demand is likely to more than compensate for higher fuel prices.

According to Southwest, leisure passenger travel demand and bookings have improved in May and June 2021 and, based on current bookings, June’s leisure fare levels are approaching those seen in June 2019.

The air carrier also said that it was continuing to see “modest, consistent improvements” in business passenger demand and bookings.

The shares of Southwest Airlines closed lower for a third consecutive trading session in New York on Wednesday. It has also been the steepest single-session loss since April 20th. The stock went down 2.71% ($1.68) to $60.39, after touching an intraday low at $59.56, or a price level not seen since May 13th ($58.75).

The shares of Southwest Airlines Company have risen 29.56% so far in 2021 compared with a 9.57% gain for the benchmark index, S&P 500 (SPX).

In 2020, Southwest Airlines Co’s stock went down 13.65%, thus, it underperformed the S&P 500, which registered a 16.26% gain.

Southwest now expects its average core cash burn, without taking into account changes in working capital, to be within the range of $1 million to $3 million per day during the second quarter. Previously, Southwest had forecast a range of $2 million to $4 million per day.

In April, the company’s cash burn was reported at nearly $6 million per day.

The air carrier also said that it now projected an 87% year-on-year increase in its capacity during the second quarter, which compares with a prior forecast of a 90% year-on-year surge.

Analyst stock price forecast and recommendation

According to CNN Money, at least 14 out of 22 surveyed investment analysts had rated Southwest Airlines Co’s stock as “Buy”, while 5 – as “Hold”. The median price target on the stock stands at $70.00.

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