Southwest Airlines LUV reported better-than-expected earnings per share and revenues in the third quarter of 2024, the results of which were unveiled last week. Despite the outperformance, non-fuel unit costs (cost per available seat mile excluding fuel, oil and profit-sharing expenses and special items) were very high, increasing 11.6% year over year. This increase was responsible for the bottom line plummeting 60.5% year over year.
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In the third quarter, expenses on salaries, wages and benefits increased 12.5% year over year. The same increased 12.8% in the first nine months of the year. The deals inked by the company with various labor groups contributed to this increase.
Southwest Airlines Co. Price, Consensus and EPS Surprise
Southwest Airlines Co. price-consensus-eps-surprise-chart | Southwest Airlines Co. Quote
Expenses on maintenance materials and repairs, landing fees and rental repairs apart from depreciation and amortization also increased significantly, resulting in the double-digit year-over-year rise in non-fuel unit costs in the September quarter.
With fuel costs declining in the September quarter (down 9.4% at LUV), due to oil prices moving southward, non-fuel unit costs have been high at other airline companies as well. At Delta Air Lines DAL total operating expenses, including special items, increased 6% year over year in the September quarter. Salaries and related costs rose 13%. This increase was due to higher wages stemming from the contract with pilots that was ratified in March 2023. Average fuel price per gallon (adjusted) fell 9% to $2.53. Non-fuel unit costs increased 7%.
At American Airlines AAL, expenses on salaries, wages and benefits increased 3.1%. The labor deal, inked with its pilots last year, contributed to this increase. Expenses on aircraft fuel and taxes decreased 10.4% to $2.87 billion. Average fuel price per gallon (including related taxes) decreased to $2.50 from $2.91 a year ago. Consolidated operating costs per available seat mile (excluding fuel and special items) increased 2.8% to 13.39 cents.
Coming back to Southwest Airlines, cost pressure is expected to stay in the final quarter of 2024 as well due to high labor and maintenance costs. LUV’s management expects non-fuel unit costs to increase in the 11-13% band in fourth-quarter 2024, from fourth-quarter 2023’s actuals.
LUV’s Zacks Rank
Currently, Southwest Airlines carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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