Southwest Posts Positive Surprise - Analyst Blog

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Leading U.S. low-cost carrier Southwest Airlines Co. ( LUV ) reported better-than expected first quarter 2013 results, thanks to fleet restructuring, introduction of various customer friendly programs and the effects of the AirTran integration.

The company's adjusted earnings of 7 cents per share beat the Zacks Consensus Estimate of 3 cents. The results improved considerably from the prior-year quarter loss of 2 cents per share.

Quarterly revenues moved up 2.3% year over year to $4.1 billion and were in-line with the Zacks Consensus Estimate of $4.1 billion. On an annualized basis, Passenger, Freight and Other revenues increased 2.3%, 5.4% and 2.0%, respectively.

Operating Statistics

Airlines traffic, measured in billions of revenue passenger miles, increased just 0.3% year over year to 23.8 billion in the first quarter. Capacity or available seat miles increased 0.6% to 30.8 billion, while load factor (percentage of seats filled with passengers) dipped 20 basis points year over year to 77.1%. Passenger revenue per available seat mile (PRASM) inched up 1.8% year over year.

Operating Expenses & Operating Income

For the first quarter, non-GAAP operating income was $112 million, up from $10 million in the year-ago quarter. Total operating expenses, excluding special items, decreased 0.2% year over year to $3.9 billion. Fuel price (economic) accounted for $3.29 per gallon, down from $3.44 in the year-ago quarter. Consolidated unit cost or cost per available seat mile (CASM), excluding fuel and special items, increased 3.4% to 8.26 cents.

Liquidity

At the end of the first quarter, Southwest had $1.3 billion in cash and short-term investments. The company currently has replaced the previous $800 million credit facilities with a $1.0 billion five-year unsecured revolving credit facility. The company had long-term debt (including current portion) of $3.0 million, representing debt-to-capitalization ratio of 30.0%.

In the first quarter, Southwest generated operating cash flow of $983 million and capital expenditures were $534 million. The company repurchased 9 million shares for approximately $115 million and paid total dividend of $15 million. As of Mar 31, 2013, return on invested capital (before taxes and excluding special items) was 8%.

Outlook

Based on current traffic trends, Southwest expects unit revenues to grow again in the coming months. Fuel price (economic) in the second quarter is estimated at $3.00 to $3.05 per gallon.

Other Airline Stocks

Delta Air Lines ( DAL ) reported first-quarter 2013 adjusted earnings of 10 cents, surpassing the Zacks Consensus Estimate of 7 cents. The results also improved considerably from the year-ago adjusted loss of 5 cents. Revenues nudged up 1% year over year to $8.50 billion but fell short of the Zacks Consensus Estimate of $8.51 billion.

Our Take

Southwest - which carries the maximum number of U.S. passengers compared to any other player such as United Continental Holdings ( UAL ) and JetBlue Airways ( JBLU ) - currently holds a Zacks Rank #3, implying a Hold rating.

We believe that Southwest's cost-cutting measures, fleet rightsizing, diversification into untapped territories, revenue management program and the launch of attractive service offerings will help it to register better results in the coming quarters.



DELTA AIR LINES (DAL): Free Stock Analysis Report

JETBLUE AIRWAYS (JBLU): Free Stock Analysis Report

SOUTHWEST AIR (LUV): Free Stock Analysis Report

UNITED CONT HLD (UAL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CASM , DAL , JBLU , LUV , UAL

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