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Southwest Airlines (LUV) Gives Bullish Cash Burn Update for Q2

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With air-travel demand improving in the United States, particularly for leisure, Southwest Airlines LUV provided a bullish update on average core cash burn for the June quarter.

In a SEC filing, management at the Dallas-based carrier said that the average core cash burn, which was $6 million a day in April, is expected in the $1-$3 million band per day for the current quarter. The projection is better than the previous estimate of the metric, which was in the $2-4 million range. Notably, the average core cash burn excludes changes in working capital. The company still expects to achieve a breakeven average core cash flow or better in June 2021.

Management further stated that operating revenues, which declined approximately 42% in April 2021 from the April 2019 levels, improved from the March reading owing to better leisure travel demand. As a result of this upbeat scenario, bookings for May and June are on an uptrend. Apart from higher passenger traffic for leisure, uptick in airfares adds to this optimistic scenario. In fact, per management, leisure fare levels in June 2021 are nearing the June 2019 levels, based on current bookings.

In another highly encouraging development, the company is currently witnessing improvements, albeit a modest one, in travel demand and bookings for business. Notably, business revenues were down approximately 80% last month from the April 2019 tally. However, the percentage decline compared favorably with the 85% and 90% reductions in March and February (both compared with their respective 2019 levels), respectively.

However, management cautioned that despite this progress, business travel demand is still well below the leisure travel trends and is likely to continue hurting close-in demand and average passenger fares in the second quarter of 2021.

The carrier expects operating revenues to decline in the 35-40% range during May from the levels witnessed in May 2019. Expecting a further improvement, June operating revenues are anticipated to fall 20-25% from the June 2019 levels.

Load factor (% of seats filled by passengers), which was around 79% last month, is expected to improve to approximately 85%, both in May and June. Capacity (measured in Available Seat Miles) that plunged approximately 24% in April is expected to be down around 18% and 6% in May and June, respectively, from the corresponding months of 2019.

Further, capacity for the second quarter is now expected to increase around 87% year over year (previous expectation was of a 90% decline), again reflecting the improved air-travel demand scenario. Moreover, the metric for the second quarter is expected to fall only 16% (previously expected to decline 15%) from the levels witnessed in second-quarter 2019. Capacity for July is currently expected to increase 41% year over year and decrease only 3% from the July 2019 levels.

However, the increase in fuel costs represents a headwind. The company, currently carrying a Zacks Rank #3 (Hold), now expects second-quarter fuel cost per gallon in the $1.90-$2 band (previous expectation: $1.85-$1.95).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, Southwest Airlines is not the only carrier to be aided by the uptick in leisure travel demand in the United States. The bullishness is also benefiting other airline heavyweights like Delta Air Lines DAL, American Airlines AAL and United Airlines UAL.

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Southwest Airlines Co. (LUV) : Free Stock Analysis Report
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
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