Southwest Airlines Co. LUV incurred a loss of $1.72 per share (excluding $1.91 from non-recurring items) in the first quarter of 2021, narrower than the Zacks Consensus Estimate of a loss of $1.82. In the year-ago period, the company incurred a loss of 15 cents per share. Results were affected by significant decline in passenger revenues as a consequence of persistent weakness in air-travel demand amid coronavirus concerns. While travel demand has improved with increased vaccinations and easing coronavirus-induced restrictions, it continues to be below pre-pandemic levels.
Meanwhile, operating revenues of $2,052 million surpassed the Zacks Consensus Estimate of $2,031.7 million. The top line declined 51.5% year over year, with passenger revenues accounting for bulk (83.4%) of the same, sliding 55.5%.
Airline traffic, measured in revenue passenger miles, declined 37.9% year over year to 14.87 billion in the quarter under review. With reduced passenger demand, capacity or available seat miles (ASMs) fell 34.5% to 23.15 billion. Load factor (percentage of seats filled by passengers) came in at 64.3%, down 340 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 32% to 7.4 cents. Moreover, revenue per available seat mile (RASM) declined 26% year over year to 8.86 cents, owing to decline in load factor and passenger revenue yield.
Southwest Airlines Co. Price, Consensus and EPS Surprise
Operating Expenses & Income
In the first quarter, operating income (as reported) totaled $199 million against operating loss of $110 million in the year-ago quarter. The company, however, incurred operating loss of $1,269 million on an adjusted basis (excluding special items). Total adjusted operating expenses (excluding profit sharing, special items, fuel and oil expenses) dropped 19.1%, thanks to the company’s cost-cutting measures and reduction in salaries, wages and benefits, among other expenses.
Fuel cost per gallon (inclusive of fuel tax: economic) was down 10.5% to $1.7. However, consolidated unit cost or cost per available seat mile (CASM) excluding fuel, oil and profit-sharing expenses, and special items, increased 23.4% year over year to 12.13 cents due to significant reduction in capacity.
This Zacks Rank #3 (Hold) company had cash and cash equivalents of $11,971 million at the end of the first quarter, compared with $11,063 million at the end of December 2020. As of Mar 31, 2021, the company had long-term debt (less current maturities) of $10,546 million compared with $10,111 million at the end of December 2020. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Southwest has been seeing improvement in leisure passenger demand and bookings for April and May. With this, the company estimates operating revenues to decline 40-45% (previous expectation: down 45-55%) in April from the 2019 levels. In May, the same is predicted to decrease 35-40% from the 2019 levels.
Load factor is estimated to be 75-80% for both April and May. The company forecasts economic fuel costs per gallon to be between $1.85 and $1.95 in the second quarter of 2021. In the year-ago period, the same was $1.33. For the full year, economic fuel costs per gallon are expected to be in the range of $1.85-$1.95 ($1.49 was reported in 2020).
Southwest anticipates operating expenses, excluding fuel and oil expenses, special items and profitsharing, to increase 10-15% year over year in the second quarter. Additionally, the carrier estimates average core cash burn to be in the range of $2 million-$4 million per day in the second quarter, compared with approximately $13 million per day in the first quarter. The company anticipates average core cash flow to either break even or turn positive by June.
Let’s take a look at some of the other recently released earnings reports from companies within the Zacks Transportation sector.
Delta Air Lines DAL, carrying a Zacks Rank #4 (Sell), incurred a loss (excluding $1.70 from non-recurring items) of $3.55 per share, wider than the Zacks Consensus Estimate of a loss of $3.08. Meanwhile, total revenues of $4,150 million topped the Zacks Consensus Estimate of $3,821.3 million.
J.B. Hunt Transport Services JBHT, a Zacks #3-Ranked player, reported earnings of $1.37 per share, beating the Zacks Consensus Estimate of $1.18. Total operating revenues of $2,618.1 million also surpassed the Zacks Consensus Estimate of $2,486.9 million.
Kansas City Southern KSU, carrying a Zacks Rank of 3, reported earnings (excluding 23 cents from non-recurring items) of $1.91 per share, missing the Zacks Consensus Estimate of $2. Moreover, quarterly revenues of $706 million lagged the Zacks Consensus Estimate of $714.3 million.
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Southwest Airlines Co. (LUV): Free Stock Analysis Report
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