Back to top

Southwest Posts Drop in August Load Factor, Tweaks Q3 View

Read MoreHide Full Article

Southwest Airlines Co. (LUV - Free Report) reported a rise in traffic for August. Traffic (measured in revenue passenger miles or RPMs) inched up 1.3% to around 11.42 billion.

On a year-over-year basis, capacity or available seat miles (ASMs) expanded 2% to 13.55 billion.  With capacity expansion exceeding traffic growth, load factor (percentage of seats filled by passengers) in the month contracted 60 basis points to 84.3%.

In the first eight months of 2018, the carrier witnessed a 2.6% increase in both RPMs and ASMs. As a result, load factor remained flat at 83.7% in the period. Additionally, passenger count climbed 2.3% to 13.97 million in August.

Southwest Airlines Co. Price and Consensus

Revised Q3 Guidance

Weather-related disruptions mainly affecting Denver, Baltimore and Washington, D.C. regions,prompted Southwest to cancel approximately 2000 flights in July and August. The emerging hurricane Florence might have a further impact on the operations of the carrier.

In the wake of flight cancellations, the airline now anticipates third-quarter 2018 ASM to increase in the range of 3.5-4% compared with the previous guidance of a rise in the band of 4.5-5%. Additionally, third-quarter unit costs (CASM) excluding fuel and oil expense and profit-sharing expense (including 0.5 to 1 point year-over-year adversity from the cancellations) are estimated to augment between 3% and 3.5%, higher than the prior prediction of an expansion between 2% and 3%.

The increased cost guidance combined with the drop in August load factor seems to have displeased investors. Consequently, shares of the company declined 2.6% at the close of business on Sep 12.

However, the company expects a 0.5 to 1 point year-over-year benefit on its unit revenues (RASM) on account of the cancellations. During the third quarter, passenger revenues continued to be strong besides impressive bookings and close-in yield trends. Combing all these factors, the low-cost carrier now envisions RASM to increase 1-1.5% year over year. Earlier view was a year-over-year change between -1% and 1%.

Further, the company continues to expect a pretax benefit of $70-$80 million in the quarter, following the implementation of a variable fee structure for its EarlyBird CheckIn product on Aug 29. Also, the carrier’s forecast for fuel costs remains unchanged at $2.25 per gallon.

Zacks Rank & Key Picks

Southwest carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are SkyWest, Inc. (SKYW - Free Report) , Trinity Industries, Inc. (TRN - Free Report) and Old Dominion Freight Line, Inc. (ODFL - Free Report) . While SkyWest and Trinity sport a Zacks Rank #1 (Strong Buy), Old Dominion holds a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of SkyWest, Trinity and Old Dominion have rallied more than 65%, 21% and 51%, respectively, in a year.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>


More from Zacks Analyst Blog

You May Like