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Southwest Airlines (LUV) Q4 Earnings Top, Q1 RASM View Upbeat

Zacks Equity Research

Southwest Airlines Co. LUV delivered fourth-quarter 2018 earnings per share of $1.17, beating the Zacks Consensus Estimate of $1.06. Results were aided by stronger revenues, higher yields and better cost management.

Operating revenues of $5,704 million outpaced the Zacks Consensus Estimate of $5,676.6 million. The top line also rose year over year. Passenger revenues accounting for bulk (93.2%) of the top line improved 8.6% year over year.

Operating Statistics

Airline traffic, measured in revenue passenger miles, increased 4.7% year over year to 33.71 billion in the quarter under review. Capacity or available seat miles (ASMs) expanded 6.5% to 40.37 billion. Load factor (percentage of seats filled by passengers) came in at 83.5%, down 150 basis points on a year-over-year basis as capacity expansion exceeded traffic growth.

Passenger revenue per available seat mile (PRASM: a key measure of unit revenues) inched up 1.9% to 13.17 cents. Moreover, in the reported quarter, revenue per available seat mile (RASM) rose 1.8% year over year to 14.13 cents.

Southwest Airlines Co. Price, Consensus and EPS Surprise

 

Southwest Airlines Co. Price, Consensus and EPS Surprise | Southwest Airlines Co. Quote


Operating Expenses & Income

In the fourth quarter, operating income (excluding special items) totaled $820 million compared with $714 million in the year-earlier period. Total adjusted operating expenses (excluding profit sharing, fuel and oil expense plus special items) climbed 6.2% year over year.

Fuel price per gallon (inclusive of fuel tax: economic) was up 4.2% year over year to $2.25. Consolidated unit cost or cost per available seat mile (CASM) excluding fuel, oil and special items inched up 0.2% year over year to 9.15 cents.

Liquidity

This Zacks Rank #2 (Buy) company had cash and cash equivalents of $1,854 million at the end of the fourth quarter compared with $1,495 million at the end of 2017. As of Dec 31, 2018, the company had a long-term debt (less current maturities) of $2,771 million compared with $3,320 million at 2017 end. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While the carrier generated a free cash flow of $3.1 billion during 2018, it returned $2.3 billion to its shareholders through $332 million in dividends and $2 billion via share repurchases.

Q1 & 2019 Outlook

The company anticipates RASM (revenue per available seat mile) to rise 4-5% year over year in the first quarter of 2019. This bullish forecast is despite a $10-$15 million adversity from the impact of government shutdown so far in January as well as an estimated $40 million revenue shortfall due to shift in timing of Easter to the second quarter. The RASM guidance takes into account benefits from the revenue management enhancements implemented last year and several other positives.

Economic fuel costs are estimated between $2 and $2.05 per gallon in the first quarter compared with $2.09 in the prior-year period. For 2019, the same is estimated in the range of $20-$2.10 per gallon. Additionally, first-quarter CASM (excluding fuel and oil expense plus profit-sharing expense) is expected to expand 6% year over year. This increase in expenses is due to underutilized fleet as a result of delay in beginning the Hawaii service among other factors. The metric is anticipated to ascend 3-3.5% for the full year as well. This downside is primarily attributable to rise in salaries, wages and benefits among other factors.

Capacity is still anticipated to increase up to 5% in 2019. On account of consistent fleet modernization efforts, the company expects fuel efficiency to improve 1-2% year over year in 2019.

Upcoming Releases

Investors interested in the broader  Transportation sector are keenly awaiting fourth-quarter earnings reports from key players like SkyWest, Inc. SKYW, C.H. Robinson Worldwide, Inc. CHRW and United Parcel Service, Inc. UPS. While SkyWest and UPS will report fourth-quarter earnings on Jan 31, C.H. Robinson will release the same on Jan 29.

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SkyWest, Inc. (SKYW) : Free Stock Analysis Report
 
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