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Southwest (LUV) Tweaks Q3 Revenue View on Soft Business Travel

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Southwest Airlines Co. (LUV - Free Report) has updated its third-quarter 2022 revenue guidance, considering steady growth in domestic and leisure air-travel demand, partially offset by declining business travel trends.

For the third quarter, Southwest anticipates 9-11% total operating revenue growth from that reported in the September-end quarter of 2019. The prior-mentioned growth rate was 8-12%, which was provided during the company’s second-quarter 2022 earnings release on Jul 28.

Although managed business revenue trends have improved  so far in September 2022 (up 8-10% sequentially), the same for July and August 2022 declined almost 26% and 32%, respectively, from the 2019 levels. As a result, the company anticipates third-quarter 2022 managed business revenues to decline 26-28% from that reported in the September-end quarter of 2019 (the prior view suggested a 17-21% decline).

Available seat miles (ASMs) are estimated to remain flat from that reported in the comparable period of 2019. Economic fuel costs per gallon are expected to be $3.25-$3.35. LUV expects consolidated unit cost or cost per available seat mile (CASM), excluding fuel, oil and profit-sharing expenses, and special items to increase 12-15% in the ongoing quarter from the comparable period in 2019.

Interest expenses are expected to be $85 million in the third quarter compared with the previously mentioned $90 million.

Shares of Southwest have lost 17.4% compared with the industry’s 19.2% fall in the year-to-date period.

 

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The negativity surrounding the stock is evident from the downward movement of the Zacks Consensus Estimate for third-quarter earnings, which has declined 52% over the past 90 days.

Zacks Rank and Stocks to Consider

Currently, Southwest carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks from the broader Zacks Transportation sector are GATX Corporation (GATX - Free Report) , Triton International Limited and Teekay Tankers Ltd. (TNK - Free Report) , each currently carrying a Zacks Rank #2 (Buy).

GATX Corporation has an expected earnings growth rate of 17.8% for the current year. GATX delivered a trailing four-quarter earnings surprise of 28.9%, on average.

The Zacks Consensus Estimate for GATX’s current-year earnings has improved 2.1% over the past 90 days. Shares of GATX have gained 10.6% over the past year.

Triton has an expected earnings growth rate of 22.4% for the current year. TRTN delivered a trailing four-quarter earnings surprise of 7.5%, on average. The company has a long-term expected growth rate of 10%.

The Zacks Consensus Estimate for TRTN’s current-year earnings has improved 4.2% over the past 90 days. Shares of TRTN have increased 20.7% over the past year.

Teekay Tankers has an expected earnings growth rate of 140.1% for the current year. TNK delivered a trailing four-quarter earnings surprise of 46.1%, on average. Teekay Tankers has a long-term expected growth rate of 3%.

The Zacks Consensus Estimate for TNK’s current-year earnings has improved more than 100% over the past 90 days. Shares of TNK have soared 122.5% over the past year.


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