Yahoo Finance Southwest Airlines (LUV) Sees Air Travel Demand, Cost Woes Stay
Southwest Airlines Co.’s (LUV) top line is benefiting from continued recovery in air-travel demand (mainly on the leisure front).
The company recently 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 incurred first-quarter 2023 loss due to the unfavorable financial impact 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, as a result of 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 and 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.
Southwest Airlines Co. Price, Consensus and EPS Surprise
Southwest Airlines Co. price-consensus-eps-surprise-chart | Southwest Airlines Co. Quote
How is Southwest Airlines Doing?
Continued recovery in air-travel demand (mainly on the leisure front) bodes well for Southwest Airlines. In the first quarter of 2023, air traffic, measured in revenue passenger miles, jumped 11.6% year over year to 29.54 billion. Capacity or available seat miles (ASMs) climbed 10.7% year over year to 38.06 billion in the first quarter of 2023. Anticipating the trend to continue, Southwest Airlines’ management expects second-quarter 2023 ASMs to improve 14% from the year-ago reported figure. For 2023, LUV now expects capacity to improve 14-15% (prior view: up 15-16%) from the 2022 level.
LUV’s liquidity position raises optimism in the stock. At the end of first-quarter 2023, the carrier’s cash and cash equivalents were $$8,359 million, higher than the long-term debt (less current maturities) of $7,999 million, implying that the company has enough cash to meet its debt obligations.
Despite the aforementioned tailwinds, escalating fuel prices continue to remain a concern. In first-quarter 2023, fuel cost per gallon (inclusive of fuel tax: economic) rose 38.7% to $3.19. For second-quarter 2023, economic fuel costs per gallon are expected between $2.45 and $2.55. For 2023, economic fuel costs per gallon are now estimated between $2.60 and $2.70 (prior view: $2.65 and $2.75). Although full-year guidance for fuel prices has been lowered, fuel expenses continue to act as a major concern for the company's bottom line.
Apart from the increase in fuel costs, a rise in labor and airport costs is also likely to dent bottom-line growth, resulting in a spike in operating expenses. In first-quarter 2023, 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. Due to an increase in labor and airport costs, as well as lower productivity levels, LUV expects CASM, excluding fuel, oil and profit-sharing expenses, and special items, to increase 5-8% in the second quarter of 2023 from the comparable period in 2022.
Zacks Rank & Stocks to Consider
Southwest Airlines currently carries a Zacks Rank #3 (Hold).
Investors interested in better-ranked stocks from the Zacks Transportation – Airline industry can consider Copa Holdings, S.A. CPA, United Airlines UAL and Alaska Air Group, Inc. ALK. While Copa Holdings and United Airlines sports a Zacks Rank #1 (Strong Buy), Alaska Air carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Copa Holdings has an expected earnings growth rate of 52.54% for the current year. CPA delivered a trailing four-quarter earnings surprise of 33.35%, on average.
The Zacks Consensus Estimate for CPA’s current-year earnings has improved 14.6% over the past 90 days. Shares of CPA have soared 39.9% over the past six months.
United Airlines has an expected earnings growth rate of more than 100% for the current year. UAL delivered a trailing four-quarter earnings surprise of 9.14%, on average.
The Zacks Consensus Estimate for UAL’s current-year earnings has improved 14.6% over the past 90 days. Shares of UAL have soared 4.2% over the past six months.
Alaska Air has an expected earnings growth rate of 44.83% for the current year. The Zacks Consensus Estimate for ALK’s current-year earnings has improved 9.1% over the past 90 days. ALK has a long-term expected growth rate of 24.23%.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
Southwest Airlines Co. (LUV) : Free Stock Analysis Report
Copa Holdings, S.A. (CPA) : Free Stock Analysis Report
Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
