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Southwest (LUV) Incurs Narrower-Than-Expected Loss in Q1

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Southwest Airlines Co. (LUV - Free Report) 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%.

Operating Statistics

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

Southwest Airlines Co. Price, Consensus and EPS Surprise

Southwest Airlines Co. price-consensus-eps-surprise-chart | Southwest Airlines Co. Quote

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.

Liquidity

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.

Outlook

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.

Sectorial Snapshot

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 - Free Report) , 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 - Free Report) , 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 - Free Report) , 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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