LUV Ends 2012 with Less Traffic

Top notch passenger airline Southwest Airlines Co. (LUV - Analyst Report) experienced a mild decline in traffic and capacity for December as well as fourth quarter of 2012, reflecting lesser passengers traveled and trips undertaken.

The company’s traffic – measured in revenue passenger miles (RPMs) – for December 2012 was 8.2 billion, almost same as the year-ago month. On a year-over-year basis, consolidated capacity (or available seat miles/ASMs) went up marginally by 0.2% to 10.5 billion. The load factor or percentage of seats filled by passengers fell to 78.0% from 78.4% in December 2011.

For the fourth quarter of 2012, Southwest witnessed a 1.4% year-over-year drop in traffic to 24.8 billion, while consolidated capacity was 31.2 billion against 31.3 in the last quarter of 2011. Load factor was 79.6%, down 90 basis points from a year ago.

Dallas, Texas based Southwest generated RPMs of 102.9 billion (down 1% year over year) and ASMs of 128.1 billion (down 0.3% year over year) for full-year 2012. The load factor was 80.3%, down 50 basis points.

The U.S. low-cost carrier will report its fourth quarter financial results on January 24, 2013, before the opening bell. The Zacks Consensus Estimates for the fourth quarter and 2012 earnings currently stand at 7 cents per share and 54 per share, respectively. The estimates reflect a year-over-year decrease of 18.8% for the fourth quarter and 24.7% growth for 2012.

Southwest Airlines – operating along with other prominent players such as United Continental Holdings Inc. (UAL - Analyst Report) and Delta Air Lines Inc. (DAL - Analyst Report) – currently holds a Zacks #1 Rank, implying a Strong Buy rating for 1–3 months.

We expect the company to benefit from its cost leadership position, strong balance sheet, favorable cost-structure, flexibility, network optimization, fleet modernization and increasing revenue initiatives.