What happened

Storm clouds are building over the airline industry, and Southwest Airlines (LUV -0.84%) is having a difficult time navigating through the turbulence. Shares of Southwest fell 14.3% in September, according to data provided by S&P Global Market Intelligence, as investors weighed the impact of sluggish demand and higher oil prices.

So what

The airline industry has bounced back nicely from pandemic lows thanks to strong consumer demand. Vacationers flush with cash and eager to get out of the house have filled airports and planes over the past few years. But rising interest rates and the potential of a slowing economy appear to be eating into demand, just as costs are going up due to new labor contracts and higher fuel prices.

Southwest in September updated its guidance for the third quarter, lowering its outlook for revenue slightly and raising its fuel cost guidance by about 6%. The company joined a chorus of other airlines fretting about a weary consumer and warning they might need to rethink the aggressive capacity expansion that occurred when demand was strong.

The price of jet fuel increased by more than 30% during the recently completed third quarter. In an ideal world, airlines would be able to recoup that expense via higher ticket prices, but with the busy summer season now behind us, Southwest and the rest of the industry will need a strong holiday season or a pullback in the price of oil from here.

Now what

Years ago, when Southwest was a young disruptor, the company seemed to defy the laws of economics that caused its more established rivals to flail whenever the economy weakened. Southwest is now the largest U.S. domestic airline, and the company is no longer nimble enough to avoid the cyclical nature of this industry.

There is no reason for investors to panic. Southwest remains a solid operator with a good balance sheet and the wherewithal to survive an economic downturn. But there isn't really much for investors to get excited about right now, and no obvious catalyst in the near term other than a rapid reversal on either oil or rates.

More likely than not, Southwest Airlines and its stock are going to spend the next few quarters flying through the doldrums. It might be impossible for this stock to take flight until investors see concrete evidence the business cycle is about to turn in the airline's favor.