Low-cost carrier Southwest Airlines Co. (LUV Quick QuoteLUV - Free Report) announced modest traffic numbers for Jul 2016, with revenue passenger miles (RPMs: a measure of air traffic) improving 1.4% on a year-over-year basis to 11.7 billion. Available seat miles (ASMs: a measure of capacity) also improved 2.3% to 13.4 billion.

Another important metric – load factor (% of seats filled by passengers) – deteriorated 80 basis points (bps) to 86.9% during the month as capacity expansion outpaced traffic growth.

In the first seven months of 2016, Southwest Airlines generated RPMs of 72.8 billion (up 6.7% year over year) and ASMs of 86.9 billion (up 6.1%), leading to a total load factor of 83.7% (up 40 bps).

Impact of Outage on RASM Outlook

Southwest Airlines suffered a technology outage on Jul 20, 2016, which resulted in the cancellation and delays of over 2000 flights. This has affected operating revenue per ASM (RASM: a key measure of unit revenue) for the third quarter by 0.5 points on a yearly basis. Given the negative impact, RASM is expected to decline in the range of 3.5% to 4.5% in the third quarter as compared to the earlier projected range of a decline of 3.0% to 4.0%. The company’s stock lost 1.25% owing to the slashed guidance.

Additionally, cost outlook for the third quarter has been changed due to the outage. Operating expense per ASM (CASM) excluding fuel and oil, special items and profit-sharing is expected to increase by 3% to 4% in the third quarter as compared to the same period last year.

SOUTHWEST AIR Price

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Delta Air Lines Inc. (DAL Quick QuoteDAL - Free Report) , another major U.S. airline, has also recently suffered a computer outage in Atlanta which disrupted its operations worldwide. This incident is expected to impact the company’s third-quarter performance as well.  

Zacks Rank & Key Picks

Southwest Airlines carries a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the transport industry include Copa Holdings SA (CPA Quick QuoteCPA - Free Report) sporting a Zacks Rank #1 (Strong Buy) and SkyWest Inc. (SKYW Quick QuoteSKYW - Free Report) with a Zacks Rank #2 (Buy).

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