Southwest (LUV) Q1 Loss Narrower Than Expected, Revenues Lag
Southwest Airlines Co. LUV incurred loss of 15 cents per share (excluding 3 cents from non-recurring items) in the first quarter of 2020, narrower than the Zacks Consensus Estimate of 48 cents. In the year-ago period, the company reported earnings of 70 cents per share. The results reflect the coronavirus-induced drop in passenger demand.
Meanwhile, operating revenues of $4,234 million lagged the Zacks Consensus Estimate of $4,397 million. The top line declined 17.8% year over year with passenger revenues, accounting for bulk (90.8%) of the top line, sliding 19%.
Operating Statistics
Airline traffic, measured in revenue passenger miles, declined 22% year over year to 23.93 billion in the quarter under review. Also, capacity or available seat miles (ASMs) fell 6.7% to 35.35 billion due to the MAX groundings as well as the coronavirus pandemic. Load factor (percentage of seats filled by passengers) came in at 67.7%, down 1330 basis points on a year-over-year basis as the decline in traffic was wider than the capacity contraction.
Passenger revenue per available seat mile (PRASM: a key measure of unit revenues) dropped 13.1% to 10.88 cents. Moreover, revenue per available seat mile (RASM) declined 11.8% year over year to 11.98 cents owing to decline in load factor.
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, operating loss totaled $110 million against operating income of $505 million in the year-ago quarter. Total adjusted operating expenses (excluding profit sharing, fuel and oil expense) dropped 1.9%.
Fuel price per gallon (inclusive of fuel tax: economic) was down 7.3% to $1.9. However, consolidated unit cost or cost per available seat mile (CASM), excluding fuel, oil and profit-sharing expenses, increased 5.1% year over year to 9.83 cents.Majority of the cost increase was due to lower capacity stemming from the Boeing 737 MAX grounding. Unit costs are expected to continue to rise in the second quarter due to the MAX grounding as well as capacity cuts owing to the coronavirus outbreak. The company expects its MAX flights to remain suspended through the end of October 2020.
Liquidity
This Zacks Rank #3 (Hold) company had cash and cash equivalents of $3,940 million at the end of the first quarter compared with $2,548 million at the end of 2019. As of Mar 31, 2020, the company had long-term debt (less current maturities) of $2,288 million compared with $1,846 million at 2019-end. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Southwest returned $639 million to shareholders through share buybacks and dividend payments during the first quarter. The same is suspended as of now until further notice.
Outlook
With persistent weakness in passenger demand and bookings, Southwest anticipates operating revenues to plunge 90-95% year over year in April. Meanwhile, ASMs are expected to decline 60% and load factor is estimated at only 6% for the month.
In May too, operating revenues are predicted to drop in the 90-95% range with 60-70% decrease in capacity and load factor in the 5-10% band.
Capacity is expected to decline at least 60% in the second quarter. Economic fuel costs are forecast in the range of $1-$1.1 per gallon in the same period.
Meanwhile, the company’s cost-cutting measures, such as freezing hiring, pausing salary hikes and reducing capital expenses, are expected to reduce operating costs by more than $2 billion and capital expenditures by more than $1 billion in 2020.
Performance of Other Transportation Stocks
Within the broader Transportation sector, Delta Air Lines DAL, CSX Corp. CSX and Union Pacific Corp. UNP reported earnings numbers last week.
Delta incurred a loss of 51 cents (excluding 33 cents from non-recurring items) in the March quarter, narrower than the Zacks Consensus Estimate of a loss of 72 cents. In the year-ago quarter, the company reported earnings (on an adjusted basis) of 96 cents per share. Total revenues of $8,592 million lagged the Zacks Consensus Estimate of $9,637.5 million and also declined 18% year over year.
CSX reported first-quarter 2020 earnings of $1 per share, beating the Zacks Consensus Estimate of 92 cents. However, the bottom line slipped approximately 2% year over year on a drop in revenues. Meanwhile, total revenues of $2,855 million lagged the consensus estimate of $2,877 million and declined approximately 5% year over year owing to lower coal and other revenues.
Union Pacific’s first-quarter 2020 earnings of $2.15 per share surpassed the Zacks Consensus Estimate of $1.86. Operating revenues of $5,229 million also beat the Zacks Consensus Estimate of $5,105.9 million. While the bottom line improved 11.4% on a year-over-year basis, primarily due to low costs, the top line declined 3% year over year due to sluggish freight revenues (down 3%).
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