In a stunning example of the way markets can go awry, Southwest Airlines, the airline that was one of the world’s biggest and most successful in the 1980s and 90s, suffered a major collapse last week when the stock price collapsed.
The airline is now trading at a price of about $7.50 per share, below its peak in July, which was just weeks after it was bought by private equity group Blackstone.
“Southwest Airlines was an incredibly successful airline, but it went into the stock market on a wild ride and crashed,” said Jeff Jones, founder of the financial information company MoneyTrackers, which tracks stocks and bonds.
“That was a wild, wild ride.
The market is still trading at an incredible level, but that ride is over.”
In August, when the airline was first bought by Blackstone, its stock was trading at about $13.80 per share.
That number rose as much as 30 per cent in less than a month and the company eventually became the world leader in domestic flights.
In October, it had soared to $28.60 per share in a market that had fallen about 20 per cent over the past two years.
This week, its share price plunged again to just $7 per share and it is now just a few points off its record low.
“We’ve been watching Southwest Airlines over the last several years.
It was one the world capital cities that dominated the global markets for several years, and the airlines share price has gone through multiple, wild, crazy, ups and downs,” Jones said.
“It’s been a wild market for Southwest Airlines.
It’s been the most extreme market in recent memory.”
When Blackstone bought Southwest Airlines in 2015, it bought the airline for $7 billion.
It bought the company at a time when many other airlines were under pressure from the global economic downturn.
It also paid the airline’s current owner, United Continental Holdings, $15.8 billion for its stake in the airline.
In 2018, Southwest was valued at $7 trillion.
The stock had climbed to more than $80 billion by the time Blackstone’s deal was announced, according to the Chicago Mercantile Exchange.
“What happened to Southwest was a disaster for the airline and the world.
It cost us hundreds of millions of dollars and we had to sell all our assets and we couldn’t get a deal done.
And now we are sitting in a hole,” said Bill Kostin, president of Blackstone Capital, which manages about $100 billion.
“This is a very difficult situation for the company and the people that are running it.
But we will continue to pursue all the options at our disposal.
We are going to be looking at all options.”
While the company has struggled with debt, the majority of its capital is still parked in the United States.
“Our position is that we will stay in the US, we have a very strong financial position there, we’re not going anywhere and we’re committed to our U.S. owners,” Kostins said.
In addition, the company said it has $20 billion in cash.
“When the airline is on the brink of bankruptcy, the question is, ‘Will we be able to get it to work?’
We have a lot of cash and we have great leverage and we know the market is going to go down,” said Blackstone chairman and CEO Larry Kastel, who also sits on the board of the airline industry’s largest trade group, the Association of Flight Attendants and Pilots.
Blackstone has no plans to restructure Southwest, which will likely be forced to lay off workers and close many of its facilities, including its headquarters in Memphis.
“The Southwest experience was a very painful one for us and for the shareholders of Southwest Airlines,” Kastels said.
He added that the airline will likely seek to refinance its debt at a lower interest rate than it has been able to take on.
“I don’t know what the level of financing is going at, but we will be able in a few weeks to get into a restructuring program,” he said.
Black Stone is expected to announce the airline plan next week.
“While we remain focused on our business, we remain hopeful that a sustainable plan for Southwest will be in place to support the airline,” Kustins said in a statement.
“However, as we have said before, the long-term outlook for Southwest remains uncertain.”
The airline had hoped to begin flying more domestic flights this summer, but said it would have to postpone that because of the storm and the hurricane season.
In September, Blackstone said it had agreed to buy Southwest for $10.2 billion.
The transaction was expected to close in early 2018.
“There are a lot more things we can do, including the possibility of a spin-off, but there’s also no way we’re going to sell Southwest, no matter what