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Southwest Sees Demand Improving in August After Drop in July
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With coronavirus concerns ongoing, Southwest Airlines Co (LUV - Free Report) continues to experience significantly weak passenger demand and bookings. Although leisure-passenger traffic increased in May and June compared with March and April, demand stalled in July with a spike in coronavirus cases. However, in August, the company saw demand gradually picking up.
In July, Southwest’s operating revenues plunged 70-75% year over year, while capacity decreased 31%. Load factor (percentage of seats filled by passengers) in the period was approximately 43%. Operating revenues are expected to decline 70-75% year over year in August. Capacity in the period is estimated to decrease 27%, while load factor is predicted to be in the range of 30-40%.
Booking trends for September have also improved modestly. Consequently, operating revenues are estimated to decline 65-75% year over year. For September capacity is forecast to drop approximately 40% (previous expectation: decline of 20-25%). Load factor is anticipated in the band of 40-50%.
For the third quarter, capacity is expected to fall 30-35%, compared with the previous estimation of a decline in the range of 20-30%. To allow passengers to maintain social-distancing, the carrier plans to keep middle seats vacant (for customers not traveling together) through at least Oct 31, 2020.
Economic fuel costs are estimated in the range of $1.20-$1.30 per gallon in the third quarter. Additionally, the carrier continues to expect operating expenses, excluding fuel and oil expense, special items, and profit-sharing expense, to decline between 10-20% year over year in the third quarter.
In July, Southwest’s average core cash burn was approximately $17 million per day, slightly better than the company’s expectation of approximately $18 million per day. For the third quarter, average core cash burn is anticipated to be approximately $20 million per day. Thanks to recent improvements in revenue trends, this forecast represents an improvement over the previous estimation for average daily core cash burn of approximately $23 million.
With consistent measures to preserve cash and bolster liquidity, Southwest is confident that it does not have to participate in the non-binding loan program of approximately $2.8 billion, which the company signed with the U.S. Treasury Department. Instead, it feels, if needed it can secure additional financing at better terms. As of Aug 18, 2020, Southwest had cash and short-term investments of approximately $15.2 billion.
Zacks Rank & Key Picks
Southwest carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are Canadian Pacific Railway Limited (CP - Free Report) , Knight-Swift Transportation Holdings Inc (KNX - Free Report) and Werner Enterprises Inc (WERN - Free Report) . While Knight-Swift sports a Zacks Rank #1 (Strong Buy), Canadian Pacific and Werner Enterprises carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Canadian Pacific, Knight-Swift and Werner Enterprises have rallied 17.2%, 24.6% and 24.4%, respectively, so far this year .
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Southwest Sees Demand Improving in August After Drop in July
With coronavirus concerns ongoing, Southwest Airlines Co (LUV - Free Report) continues to experience significantly weak passenger demand and bookings. Although leisure-passenger traffic increased in May and June compared with March and April, demand stalled in July with a spike in coronavirus cases. However, in August, the company saw demand gradually picking up.
In July, Southwest’s operating revenues plunged 70-75% year over year, while capacity decreased 31%. Load factor (percentage of seats filled by passengers) in the period was approximately 43%. Operating revenues are expected to decline 70-75% year over year in August. Capacity in the period is estimated to decrease 27%, while load factor is predicted to be in the range of 30-40%.
Booking trends for September have also improved modestly. Consequently, operating revenues are estimated to decline 65-75% year over year. For September capacity is forecast to drop approximately 40% (previous expectation: decline of 20-25%). Load factor is anticipated in the band of 40-50%.
Southwest Airlines Co. Price
Southwest Airlines Co. price | Southwest Airlines Co. Quote
For the third quarter, capacity is expected to fall 30-35%, compared with the previous estimation of a decline in the range of 20-30%. To allow passengers to maintain social-distancing, the carrier plans to keep middle seats vacant (for customers not traveling together) through at least Oct 31, 2020.
Economic fuel costs are estimated in the range of $1.20-$1.30 per gallon in the third quarter. Additionally, the carrier continues to expect operating expenses, excluding fuel and oil expense, special items, and profit-sharing expense, to decline between 10-20% year over year in the third quarter.
In July, Southwest’s average core cash burn was approximately $17 million per day, slightly better than the company’s expectation of approximately $18 million per day. For the third quarter, average core cash burn is anticipated to be approximately $20 million per day. Thanks to recent improvements in revenue trends, this forecast represents an improvement over the previous estimation for average daily core cash burn of approximately $23 million.
With consistent measures to preserve cash and bolster liquidity, Southwest is confident that it does not have to participate in the non-binding loan program of approximately $2.8 billion, which the company signed with the U.S. Treasury Department. Instead, it feels, if needed it can secure additional financing at better terms. As of Aug 18, 2020, Southwest had cash and short-term investments of approximately $15.2 billion.
Zacks Rank & Key Picks
Southwest carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are Canadian Pacific Railway Limited (CP - Free Report) , Knight-Swift Transportation Holdings Inc (KNX - Free Report) and Werner Enterprises Inc (WERN - Free Report) . While Knight-Swift sports a Zacks Rank #1 (Strong Buy), Canadian Pacific and Werner Enterprises carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Canadian Pacific, Knight-Swift and Werner Enterprises have rallied 17.2%, 24.6% and 24.4%, respectively, so far this year .
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
See 8 breakthrough stocks now>>