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Southwest (LUV) Q1 Loss Narrower Than Expected, Revenues Beat

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Southwest Airlines LUV incurred a loss (excluding 15 cents from non-recurring items) of 32 cents in the first quarter of 2022, narrower than the Zacks Consensus Estimate of a loss of 34 cents. However, the amount of loss narrowed by 81.4% year over year. The company’s first-quarter performance was hurt by Omicron-induced woes in January and February.

Operating revenues of $4694 million outperformed the Zacks Consensus Estimate of $4,663.8 million and also jumped more than 100% year over year. However, the same declined 8.8% from the first quarter of 2021. Passenger revenues, which accounted for 88.1% of the top line, improved more than 100% year over year.

Operating Statistics

Airline traffic, measured in revenue passenger miles, surged 78% year over year to 26.48 billion in the quarter under review. Capacity or available seat miles (ASMs) climbed 48.6% year over year to 34.38 billion. Load factor (percentage of seats filled by passengers) improved to 77% from 64.3% 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 62.6% year over year to 12.03 cents. Revenue per available seat mile (RASM) improved 54.1% to 13.65 cents.

Southwest Airlines Co. Price, Consensus and EPS Surprise

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 Expenses & Income

In the first quarter, Southwest incurred an operating loss (as reported) of $151 million against an operating income of $199 million in the year-ago period. On an adjusted basis (excluding special items), the company reported operating loss of $135 million. Total adjusted operating expenses (excluding profit sharing, special items, fuel and oil expenses) increased 34.9%.

Fuel cost per gallon (inclusive of fuel tax: economic) rose 35.3% to $2.30. However, consolidated unit cost or cost per available seat mile (CASM) excluding fuel, oil and profit-sharing expenses, and special items decreased 9.2% year over year.

Liquidity

Southwest, carrying a Zacks Rank #3 (Hold), ended the first quarter with cash and cash equivalents of $13,098 million compared with $12,480 million at the end of December 2021. As of Mar 31, 2022, the company had long-term debt (less current maturities) of $10,309 million compared with $10,274 million at the end of December 2021.

Q2 & Full-Year Outlook

Southwest is seeing strong bookings for spring and summer travel. The company’s managed business revenues have also been improving steadily. For April, LUV expects managed business revenues to decrease approximately 30% from the comparable period in 2019. It expects sequential improvement in May and June managed business revenues compared with their respective 2019 levels. Anticipating continued improvement in bookings, the carrier expects to reap profits in the remaining three quarters of 2022 as well as for the full year.

Southwest predicts operating revenues to increase 8-12% in the second quarter from the comparable period in 2019. Load factor is estimated to be 85%. Capacity is expected to decline around 7% in the current quarter from the 2019 level. Economic fuel costs per gallon are forecast to be $3.05-$3.15 in the second quarter. Due to 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 14-18% in the ongoing quarter from the comparable period in 2019. Interest expenses are expected to be $90 million in the second quarter.

For 2022, Southwest expects capacity to decline approximately 4% from the 2019 level. Economic fuel costs per gallon are estimated to be $2.75-$2.85. CASM, excluding fuel, oil and profit-sharing expenses, and special items, is anticipated to increase 12-16% in 2022 from the 2019 level. Interest expenses are expected to be $360 million in 2022. LUV expects to end the year with total aircraft count of 814. Effective tax rate is expected to be 24-26% in the year. Capital spending is still anticipated to be about $5 billion in 2022.

Sectorial Snapshot

Within the broader Transportation sector, Delta Air Lines DAL and J.B. Hunt Transport Services JBHT recently reported first-quarter 2022 results.

Delta, carrying a Zacks Rank #2 (Buy), incurred a loss (excluding 25 cents from non-recurring items) of $1.23 per share in the first quarter of 2022, narrower than the Zacks Consensus Estimate of a loss of $1.28. With Omicron hampering travel plans in the early part of first-quarter 2022, the carrier incurred a loss after reaping profits in the last two quarters of 2021. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Delta’s first-quarter revenues came in at $9,348 million, which not only beat the Zacks Consensus Estimate of $9,063.5 million, but also soared in excess of 100% from the year-ago figure. The uptick in air-travel demand in the United States can be gauged from the fact that 80.5% of first-quarter 2022 passenger revenues came from domestic markets.

J.B. Hunt, carrying a Zacks Rank #3, reported first-quarter 2022 earnings of $2.29 per share, which surpassed the Zacks Consensus Estimate of $1.91. The bottom line surged 67.2% year over year on higher revenues across all segments.

J.B. Hunt’s first-quarter operating revenues of $3,488.6 million also outperformed the Zacks Consensus Estimate of $3,260.5 million. The top line jumped 33.3% year over year. Total operating revenues, excluding fuel surcharges, rose 27.4% year over year.


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