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Southwest Airlines (LUV) Rides on Air Travel Demand, Costs Ail
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Southwest Airlines Co.’s (LUV - Free Report) top line is benefiting from continued recovery in air-travel demand (mainly on the leisure front). In the first quarter of 2023, air traffic, measured in revenue passenger miles, increased 11.6% year over year to 29.54 billion. Capacity or available seat miles (ASMs) climbed 10.7% year over year to 38.06 billion in the first quarter of 2023. Anticipating the trend to continue, Southwest Airlines’ management expects second-quarter 2023 ASMs to improve 14% from the year-ago reported figure. For 2023, LUV now expects capacity to improve 14-15% (prior view: up 15-16%) from the 2022 level.
LUV’s liquidity position raises optimism in the stock. At the end of first-quarter 2023, the carrier’s cash and cash equivalents were $$8,359 million, higher than the long-term debt (less current maturities) of $7,999 million, implying the company has enough cash to meet its debt obligations.
Despite the aforementioned tailwinds, escalating fuel prices continue to remain a concern. In first-quarter 2023, fuel cost per gallon (inclusive of fuel tax: economic) rose 38.7% to $3.19. For second-quarter 2023, economic fuel costs per gallon are expected between $2.45 and $2.55.
For 2023, economic fuel costs per gallon are now estimated between $2.60 and $2.70 (prior view: $2.65 and $2.75). Although full-year guidance for fuel prices has been lowered, fuel expenses continue to act as a major concern for the company's bottom line.
Apart from the increase in fuel costs, a rise in labor and airport costs is also likely to dent bottom-line growth, resulting in a spike in operating expenses. In first-quarter 2023, consolidated unit cost or cost per available seat mile (CASM) excluding fuel, oil and profit-sharing expenses, and special items increased 5.9% year over year. Due to an increase in labor and airport costs, as well as lower productivity levels, LUV expects CASM, excluding fuel, oil and profit-sharing expenses, and special items, to increase 5-8% in the second quarter of 2023 from the comparable period in 2022.
Zacks Rank & Stocks to Consider
Southwest Airlines currently carries a Zacks Rank #3 (Hold).
Copa Holdings has an expected earnings growth rate of 75.42% for the current year. CPA delivered a trailing four-quarter earnings surprise of 14.60%, on average.
The Zacks Consensus Estimate for CPA’s current-year earnings has improved 25.5% over the past 90 days. Shares of CPA have soared 35% over the past six months.
Allegiant has an expected earnings growth rate of more than 100% for the current year. ALGT delivered a trailing four-quarter earnings surprise of 79.78%, on average.
The Zacks Consensus Estimate for ALGT’s current-year earnings has improved 46.5% over the past 90 days. Shares of ALGT have soared 57.2% over the past six months.
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Southwest Airlines (LUV) Rides on Air Travel Demand, Costs Ail
Southwest Airlines Co.’s (LUV - Free Report) top line is benefiting from continued recovery in air-travel demand (mainly on the leisure front). In the first quarter of 2023, air traffic, measured in revenue passenger miles, increased 11.6% year over year to 29.54 billion. Capacity or available seat miles (ASMs) climbed 10.7% year over year to 38.06 billion in the first quarter of 2023. Anticipating the trend to continue, Southwest Airlines’ management expects second-quarter 2023 ASMs to improve 14% from the year-ago reported figure. For 2023, LUV now expects capacity to improve 14-15% (prior view: up 15-16%) from the 2022 level.
LUV’s liquidity position raises optimism in the stock. At the end of first-quarter 2023, the carrier’s cash and cash equivalents were $$8,359 million, higher than the long-term debt (less current maturities) of $7,999 million, implying the company has enough cash to meet its debt obligations.
Despite the aforementioned tailwinds, escalating fuel prices continue to remain a concern. In first-quarter 2023, fuel cost per gallon (inclusive of fuel tax: economic) rose 38.7% to $3.19. For second-quarter 2023, economic fuel costs per gallon are expected between $2.45 and $2.55.
For 2023, economic fuel costs per gallon are now estimated between $2.60 and $2.70 (prior view: $2.65 and $2.75). Although full-year guidance for fuel prices has been lowered, fuel expenses continue to act as a major concern for the company's bottom line.
Apart from the increase in fuel costs, a rise in labor and airport costs is also likely to dent bottom-line growth, resulting in a spike in operating expenses. In first-quarter 2023, consolidated unit cost or cost per available seat mile (CASM) excluding fuel, oil and profit-sharing expenses, and special items increased 5.9% year over year. Due to an increase in labor and airport costs, as well as lower productivity levels, LUV expects CASM, excluding fuel, oil and profit-sharing expenses, and special items, to increase 5-8% in the second quarter of 2023 from the comparable period in 2022.
Zacks Rank & Stocks to Consider
Southwest Airlines currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks for investors interested in the Zacks Transportation sector are Copa Holdings, S.A. (CPA - Free Report) and Allegiant Travel Company (ALGT - Free Report) . Each of these companies presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Copa Holdings has an expected earnings growth rate of 75.42% for the current year. CPA delivered a trailing four-quarter earnings surprise of 14.60%, on average.
The Zacks Consensus Estimate for CPA’s current-year earnings has improved 25.5% over the past 90 days. Shares of CPA have soared 35% over the past six months.
Allegiant has an expected earnings growth rate of more than 100% for the current year. ALGT delivered a trailing four-quarter earnings surprise of 79.78%, on average.
The Zacks Consensus Estimate for ALGT’s current-year earnings has improved 46.5% over the past 90 days. Shares of ALGT have soared 57.2% over the past six months.