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Southwest Airlines (LUV) Incurs Q1 Loss, Misses on Revenues

Southwest Airlines Co. (LUV) reported first-quarter 2023 loss of 27 cents per share, wider than the Zacks Consensus Estimate of a loss of 21 cents. In the year-ago reported quarter, LUV had reported a loss of 32 cents per share.

LUV had to bear the first quarter of 2023 loss due to the unfavorable financial impacts of almost $380 million pre-tax, or $294 million after-tax, related to the December 2022 operational disruption. The majority of this impact was backed by an unfavorable revenue impact of almost $325 million due to cancelations of holiday return travel and a decline in bookings for January and February 2023 travel. Despite that, travel demand and revenue trends in March 2023 remained solid, which resulted in profitability for the month and record first-quarter revenues.

Revenues of $5,706 million lagged the Zacks Consensus Estimate of $5,741.4 million but improved 21.6% year over year.

Operating Statistics

Airline traffic, measured in revenue passenger miles, jumped 11.6% year over year to 29.54 billion in the quarter under review. Capacity or available seat miles (ASMs) climbed 10.7% year over year to 38.06 billion. The load factor (percentage of seats filled by passengers) improved to 77.6% from 77% in the year-ago quarter.

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Passenger revenue per available seat mile (a key measure of unit revenues) ascended 11.5% year over year to 13.41 cents. Revenue per available seat mile improved 9.8% to 14.99 cents.

Operating Expenses & Income

In the first quarter, Southwest incurred an operating loss (as reported) of $284 million compared with an operating loss of $151 million in the year-ago period. On an adjusted basis (excluding special items), the company reported an operating loss of $284 million compared with a loss of $135 million. Total adjusted operating expenses (excluding profit sharing, special items, fuel and oil expenses) increased 17.3%.

Fuel cost per gallon (inclusive of fuel tax: economic) rose 38.7% to $3.19. Consolidated unit cost or cost per available seat mile (CASM) excluding fuel, oil and profit-sharing expenses, and special items increased 5.9% year over year.

Liquidity

Southwest Airlines ended the first quarter with cash and cash equivalents of $8,359 million compared with $9,492 million at the end of December 2022. As of Mar 31, 2023, the company had long-term debt (less current maturities) of $7,999 million compared with $8,046 million at the end of December 2022.

LUV generated $706 million of cash from operating activities in the reported quarter, while CapEx was $1,046 million.

Q2 & Full-Year Outlook

For second-quarter 2023, ASMs are estimated to improve 14% from the year-ago reported figure. Economic fuel costs per gallonare expected to be $2.45 to $2.55. LUV expects CASM, excluding fuel, oil and profit-sharing expenses, and special items, to increase 5-8% in the second quarter from the comparable period in 2022. Interest expenses are expected to be $65 million in the second quarter.

For 2023, Southwest now expects capacity to improve 14-15% (prior view: up 15-16%) from the 2022 level. Economic fuel costs per gallon are now estimated between $2.60 and $2.70 (prior view: $2.65 and $2.75). CASM, excluding fuel, oil and profit-sharing expenses, and special items, is anticipated to decrease 2-4% (prior view: down 3.5-5.5%) in 2023 from 2022.

Interest expenses are still expected to be $250 million in 2023. The effective tax rate is still expected to be 23-24% in the year. Capital expenditures are now anticipated to be $3.5 billion (prior view: $4 billion) for 2023.

Currently, Southwest Airlines carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performances of Other Transportation Companies

J.B. Hunt Transport Services, Inc.’s JBHT first-quarter 2023 earnings of $1.89 per share missed the Zacks Consensus Estimate of $2.04 and declined 17.5% year over year.

JBHT’s total operating revenues of $3,229.58 million also lagged the Zacks Consensus Estimate of $3,434.4 million and fell 7.4% year over year. The downfall was due to declines in the volume of 25% in Integrated Capacity Solutions (ICS), 5% in Intermodal (JBI) and 17% in Final Mile Services (FMS), and a 17% decline in revenue per load in Truckload (JBT). Revenue declines in ICS, JBI, FMS and JBT were partially offset by Dedicated Contract Services revenue growth of 13%.

JBHT’s total operating revenues, excluding fuel surcharges, decreased 10.2% year over year.

Delta Air Lines’ DAL first-quarter 2023 earnings (excluding 82 cents from non-recurring items) of 25 cents per share missed the Zacks Consensus Estimate of 29 cents. Volatile fuel prices and unfavorable weather conditions led to this downtick. DAL reported a loss of $1.23 per share a year ago, dull in comparison to the current scenario, as air-travel demand was not so buoyant then.

DAL reported revenues of $12,759 million, which missed the Zacks Consensus Estimate of $12,767.4 million. Driven by higher air-travel demand, total revenues increased 36.49% on a year-over-year basis.

Alaska Air Group, Inc. ALK reported first-quarter 2023 loss of 62 cents per share, wider than the Zacks Consensus Estimate of a loss of 48 cents. In the year-ago quarter, ALK incurred a loss of $1.33 per share.

ALK’s operating revenues of $ 2,196 million missed the Zacks Consensus Estimate of $2,202.5 million. The top line jumped 31% year over year, with passenger revenues accounting for 90.3% of the top line and increasing 31% owing to continued recovery in air-travel demand.

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