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Southwest Airlines (LUV) May Traffic Up, Load Factor Down

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Southwest Airlines Co. (LUV - Free Report) reported traffic results for May. Traffic (measured in revenue passenger miles or RPMs) rose 4.2% to around 11.71 billion while capacity or available seat miles (ASMs) expanded 5.2% to 13.84 billion.

Load factor (percentage of seats filled by passengers) contracted 80 basis points (bps) to 84.6% in the month as traffic growth was exceeded by capacity expansion. Additionally, passenger count grew 5.3% to 14.43 billion.

In the first five months of 2018, Southwest Airlines witnessed a 3% rise in RPMs to 53.35 billion. Also, ASMs inched up 2.5% to 64.78 billion. As a result, the load factor increased 50 bps to 82.4%. Moreover, passenger count climbed 4.8% to 65.76 billion on a year-to-date basis.

 

With the entire airline industry embroiled in trouble pertaining to high fuel costs, the company recently trimmed its 2018 capacity view for the above reason. The company now projects capacity in the low 4% range compared with its prior forecast in the low 5% range. Additionally, the company now anticipates second-quarter 2018 available seat mile (ASM) or capacity to ascend approximately 3.5%. Earlier, the company had called for 3.5-4% growth in the metric.

Further adding to the woes, Southwest Airlines’ demand is still low due to the fatal Flight 1380 incident in April. Hence, the company now expects operating revenue per available seat mile (RASM) to decline around 3% year over year (earlier guidance saw a fall in the 1-3% range). The company cited soft bookings following insufficient marketing initiatives post the unfortunate incident as the reason behind the downside.

The fuel cost headwind being a common problem plaguing all airlines, other carriers too seem to follow suit. Most recently, Delta Air Lines, Inc. (DAL - Free Report) lifted its view for fuel costs. It now estimates the same between $2.20 and $2.25 per gallon. The previous forecast came in between $2.07 and $2.12.

Zacks Rank & Key Picks

Southwest Airlines carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the broader Transportation sector are GATX Corporation (GATX - Free Report) and Expeditors International of Washington, Inc. (EXPD - Free Report) .  While GATX holds a Zacks Rank #2 (Buy), Expeditors sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of GATX and Expeditors have rallied more than 16% and 38%, respectively, in a year.

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