Southwest (LUV) Q4 Earnings Beat Mark, Revenues Surge Y/Y

Southwest Airlines LUV reported fourth-quarter 2021 earnings (excluding 3 cents from non-recurring items) of 14 cents per share, which surpassed the Zacks Consensus Estimate of 5 cents. This marks the company’s first profitable quarter after seven consecutive losses since the pandemic began in 2020. In the year-ago period, the company had incurred a loss of $1.29 per share. Strong holiday travel demand during November and December, as well as well as incremental revenues generated from the company's new co-brand credit card agreement, aided Southwest’s fourth-quarter performance.

Operating revenues of $5,051 million outperformed the Zacks Consensus Estimate of $5,029 million and also jumped more than 100% year over year. However, the same declined 11.8% from the fourth-quarter 2019 reading. Passenger revenues, which accounted for 90.2% of the top line, totaled $4,557 million, reflecting an improvement of more than 100% year over year.

Southwest Airlines Co. Price, Consensus and EPS Surprise

Southwest Airlines Co. Price, Consensus and EPS Surprise

Southwest Airlines Co. price-consensus-eps-surprise-chart | Southwest Airlines Co. Quote

Operating Statistics

Airline traffic, measured in revenue passenger miles, skyrocketed more than 100% year over year to 29.71 billion in the quarter under review. Capacity or available seat miles (ASMs) climbed 54.4% year over year to 36.69 billion. Load factor (percentage of seats filled by passengers) improved to 81% from 53.8% in the year-ago quarter as traffic growth outweighed capacity expansion.

Passenger revenue per available seat mile (PRASM: a key measure of unit revenues) ascended 77.4% year over year to 12.42 cents. Revenue per available seat mile (RASM) improved 62.4% to 13.77 cents.

Operating Expenses & Income

In the fourth quarter, operating income (as reported) totaled $195 million against an operating loss of $1,169 million in the year-ago quarter. On an adjusted basis (excluding special items), the company reported operating income of $209 million. Total adjusted operating expenses (excluding profit sharing, special items, fuel and oil expenses) increased 32%.

Fuel cost per gallon (inclusive of fuel tax: economic) rose 80% to $2.25. However, consolidated unit cost or cost per available seat mile (CASM) excluding fuel, oil and profit-sharing expenses, and special items decreased 14.5% year over year.

Liquidity

Southwest, carrying a Zacks Rank #4 (Sell), ended the fourth quarter with cash and cash equivalents of $12,480 million compared with $11,063 million at the end of December 2020. As of Dec 31, 2021, the company had long-term debt (less current maturities) of $10,274 million compared with $10,111 million at the end of December 2020.

Outlook

Due to Omicron-induced staffing issues and bad weather conditions, Southwest expects to incur a loss in the first quarter of 2022. However, the company expects to reap profits in the remaining quarters of 2022 and for the full year.

The spread of the Omicron variant of coronavirus is also affecting the airline’s bookings and causing a spike in trip cancellations for January and February. It is also delaying recovery in business travel demand. LUV expects the combined effect of this to be $330 million on its operating revenues for January and February. The company also estimates a negative impact of $50 million on its January operating revenues due to fight cancellations arising from Omicron-induced staffing shortages and inclement weather conditions.

For the first quarter of 2022, the carrier expects 2022 managed business revenues to decline 45-55% from the 2019 level. For the same period, operating revenues are estimated to fall 10-15% from the first quarter of 2019. Load factor is forecast to be 75-80%. Capacity is predicted to decrease approximately 9% in the ongoing quarter compared with 2019. Economic fuel costs per gallon are predicted to be $2.25-$2.35 for the current quarter. First-quarter CASM, excluding fuel and oil expense, profit sharing, and special items, is estimated to increase 20-24% from the comparable period in 2019. This is due to expectations of reduced capacity, costs associated with incentive pays for employees and other costs related to lower productivity levels.

For full-year 2022, Southwest expects capacity to decline about 4% from the 2019 level. Economic fuel costs per gallon are estimated to be $2.25-$2.35 for 2022, CASM, excluding fuel and oil expense, profit sharing, and special items, is expected to increase 12-16% in the current year from the 2019 level.

Sectorial Snapshots

Within the broader Transportation sector, CSX Corporation CSX, Canadian National Railway CNI and GATX Corporation GATX recently reported fourth-quarter 2021 results.

CSX, carrying a Zacks Rank #3 (Hold), reported fourth-quarter 2021 earnings of 42 cents per share, which surpassed the Zacks Consensus Estimate by a penny. The bottom line improved in double digits year over year owing to higher revenues.

CSX’s total revenues of $3,427 million outperformed the Zacks Consensus Estimate of $3296 million. The top line jumped 21.3% year over year owing to growth across all its businesses, and revenues from Quality Carriers, which the company acquired in July 2021.

Canadian National, carrying a Zacks Rank #3, reported fourth-quarter 2021 earnings (excluding 2 cents from non-recurring items) of $1.36 per share (C$1.71), which surpassed the Zacks Consensus Estimate of $1.21. The bottom line increased in double digits year over year due to lower costs.

Canadian National’s quarterly revenues of $2,977.4 million (C$3,753 million) topped the Zacks Consensus Estimate of $2,917.4 million. The top line improved year over year, driven by higher freight rates and fuel surcharges.

GATX, carrying a Zacks Rank #2 (Buy), reported fourth-quarter 2021 earnings (excluding 11 cents from non-recurring items) of $1.58 per share, which surpassed the Zacks Consensus Estimate of $1.07. The bottom line surged more than 200% year over year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

GATX’s total revenues of $321 million increased 5.3% year over year, mainly due to a 5.2% rise in lease revenues, which came in at $288.4 million. Lease revenues contributed 89.8% to the top line.

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