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Southwest's (LUV) Q2 Loss Wider Than Expected, Revenues Beat

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Southwest Airlines Co. (LUV - Free Report) incurred a loss (excluding 92 cents from non-recurring items) of 35 cents per share in the second quarter of 2021, wider than the Zacks Consensus Estimate of a loss of 21 cents. This marks the company’s sixth consecutive quarterly loss as the pandemic continues to dent air-travel demand.

The airline’s second-quarter loss narrowed significantly from the prior-year quarter’s loss of $2.67 per share owing to improvement in air-travel demand despite the same being below the pre-pandemic levels.

Operating revenues of $4,008 million outperformed the Zacks Consensus Estimate of $3,942.5 million and also jumped more than 200% year over year. However, it declined 32.2% from the second-quarter 2019 reading. Passenger revenues, which accounted for 89% of the top line, totaled $3,569 million, reflecting a marked improvement from only $704 million recorded in the second quarter of 2020 when air-travel demand had hit rock-bottom due to large-scale travel restrictions amid the rising coronavirus cases.

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 Statistics

Airline traffic, measured in revenue passenger miles, skyrocketed more than 300% year over year to 27.69 billion in the quarter under review.  Capacity or available seat miles (ASMs) climbed 86.8% year over year to 33.41 billion. Load factor (percentage of seats filled by passengers) came in at 82.9% compared with 31.4% in the second quarter of 2020. The improvement was on the back of traffic increase outweighing capacity expansion.

Passenger revenue per available seat mile (PRASM: a key measure of unit revenues)ascended more than 100% year over year to 10.68 cents. Revenue per available seat mile (RASM) also improved more than 100% to 11.99 cents.

Operating Expenses & Income

In the second quarter, operating income (as reported) totaled  $594 million against an operating loss of $1,127 million in the year-ago quarter. The company, however, incurred operating loss of  $162 million on an adjusted basis (excluding special items). Total adjusted operating expenses (excluding profit sharing, special items, fuel and oil expenses) increased 13.3% due to increase in capacity.

Fuel cost per gallon (inclusive of fuel tax: economic)  rose 44.4% to $1.92. However, consolidated unit cost or cost per available seat mile (CASM) excluding fuel, oil and profit-sharing expenses, and special items, decreased 39.3% year over year owing to capacity expansion.


This presently Zacks Rank #3 (Hold) company had cash and cash equivalents of  $14.12 billion at the end of the second quarter compared with $11.06 billion  at the end of December 2020.  As of Jun 30, 2021, the company had long-term debt (less current maturities) of $9.19 billion compared with $10.11 billion at the end of December 2020.


Southwest anticipates operating revenues to decline 10-15% in July from the level reported in the same period of 2019. The same for August is expected to be down 12-17%. Load factor is expected to be 85% and 80% in July and August, respectively.

The airline estimates economic fuel costs per gallon in the range of $2.05-$2.15 in both the third and the fourth quarter. The same was $1.23 in the third quarter of 2020 and $1.25 in the fourth quarter of 2020. The company expects operating expenses and unit costs excluding fuel and oil expense, special items and profitsharing to increase 1-5% in the third quarter from the 2019 level. It predicts capacity to increase approximately 49% year over year in the third quarter. For the fourth quarter, it expects capacity to jump approximately 68% year over year.

With air-travel demand continuing to improve, the carrier expects to be profitable in the third and the fourth quarter of 2021.  Despite improvement, the lag in business travel recovery is expected to negatively impact close-in demand and average passenger fares in the third quarter.

Southwest expects to achieve cost savings of approximately $150 million in the third quarter from voluntary separation and extended leave programs. Annual 2021 cost savings are estimated to be around $1 billion.

Sectorial Snapshots

Within the broader Transportation  sector,  Delta Air Lines (DAL - Free Report) , J.B. Hunt Transport Services (JBHT - Free Report) and Kansas City Southern  (KSU - Free Report) recently reported second-quarter 2021 results.

Delta, currently carrying a Zacks Rank of 3, incurred a loss (excluding $2.09 from non-recurring items)  of $1.07 per share, narrower than the Zacks Consensus Estimate of a loss of $1.41.  Total revenues of $7,126 million also topped the Zacks Consensus Estimate of $6,340.9 million.

J.B. Hunt, presently carrying a Zacks Rank #2 (Buy), reported earnings of $1.61 per share, surpassing the Zacks Consensus Estimate of $1.55.  Total operating revenues of $2908.4 million outperformed the Zacks Consensus Estimate of $2722 million. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Kansas City Southern, carrying a Zacks Rank #4 (Sell) at present, reported earnings (excluding $6.23 from non-recurring items) of $2.06 per share, missing the Zacks Consensus Estimate of $2.16.  However, quarterly revenues of $749.5 million surpassed the Zacks Consensus Estimate of $733.1 million.