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Southwest Cuts Q1 View on 737 MAX Groundings & Other Concerns
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Southwest Airlines Co. (LUV - Free Report) has provided a bearish outlook for the first quarter of 2019 following numerous headwinds like weather-related disturbances, unscheduled maintenance disruptions due to contract negotiations with the Aircraft Mechanics Fraternal Association (AMFA) and the Boeing 737 MAX 8 groundings.
The company expects approximately 9,400 flight cancellations through Mar 31, 2019 on account of the above-mentioned woes. These flight cancellations forced the company to trim its first-quarter capacity (available seat mile or ASM) guidance. The metric is now anticipated to inch up approximately 1% compared with the previous forecast of a rise in the 3.5-4% range. In fact, the airline reduced its published flight schedule since yesterday for the period through Apr 20, 2019 as a result of the MAX 8 groundings.
Southwest had earlier forecast a negative revenue impact of $60 million for the first quarter due to softness in bookings on account of the government shutdown. However, ever since the government shutdown the company continued to experience low demand and yields. Revenues were further impacted by bad weather conditions, maintenance disruptions while negotiating the labor deal with the AMFA as well as the MAX 8 groundings. These adversities are now estimated to an impact of nearly $150 million on revenues in the ongoing quarter.
Moreover, this Dallas, TX-based low-cost carrier slashed its operating revenue per ASM (RASM) view, primarily due to flight cancellations from the unscheduled maintenance disruptions and the sluggish demand scenario. RASM is now predicted to increase 2-3% year over year in the current quarter compared with the past expectation of 3-4% expansion.
The large number of flight cancellations induced an approximate 3-point year-over-year rise in the first-quarter unit costs excluding fuel and oil expense and profit-sharing expenses. Consequently, the carrier now projects operating expenses per ASM (CASM) excluding fuel and oil plus profit-sharing expenses to escalate around 10% year over year. Previously, the same was estimated to climb 6%.
The company’s recent agreement with AMFA will further elevate the costs associated with salaries, wages and benefits. The new labor pact will add approximately $30 million to salaries, wages and benefits costs in the first quarter. Meanwhile, the same is envisioned at $42 million for 2019. Further, fuel costs are expected to be approximately $2.05 per gallon for the first quarter (past forecast was in the band of $2-$2.05).
Shares of Azul, SkyWest and Swire Pacific have gained more than 2%, 20% and 17%, respectively, on a year-to-date basis.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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Southwest Cuts Q1 View on 737 MAX Groundings & Other Concerns
Southwest Airlines Co. (LUV - Free Report) has provided a bearish outlook for the first quarter of 2019 following numerous headwinds like weather-related disturbances, unscheduled maintenance disruptions due to contract negotiations with the Aircraft Mechanics Fraternal Association (AMFA) and the Boeing 737 MAX 8 groundings.
The company expects approximately 9,400 flight cancellations through Mar 31, 2019 on account of the above-mentioned woes. These flight cancellations forced the company to trim its first-quarter capacity (available seat mile or ASM) guidance. The metric is now anticipated to inch up approximately 1% compared with the previous forecast of a rise in the 3.5-4% range. In fact, the airline reduced its published flight schedule since yesterday for the period through Apr 20, 2019 as a result of the MAX 8 groundings.
Southwest had earlier forecast a negative revenue impact of $60 million for the first quarter due to softness in bookings on account of the government shutdown. However, ever since the government shutdown the company continued to experience low demand and yields. Revenues were further impacted by bad weather conditions, maintenance disruptions while negotiating the labor deal with the AMFA as well as the MAX 8 groundings. These adversities are now estimated to an impact of nearly $150 million on revenues in the ongoing quarter.
Southwest Airlines Co. Price
Southwest Airlines Co. Price | Southwest Airlines Co. Quote
Moreover, this Dallas, TX-based low-cost carrier slashed its operating revenue per ASM (RASM) view, primarily due to flight cancellations from the unscheduled maintenance disruptions and the sluggish demand scenario. RASM is now predicted to increase 2-3% year over year in the current quarter compared with the past expectation of 3-4% expansion.
The large number of flight cancellations induced an approximate 3-point year-over-year rise in the first-quarter unit costs excluding fuel and oil expense and profit-sharing expenses. Consequently, the carrier now projects operating expenses per ASM (CASM) excluding fuel and oil plus profit-sharing expenses to escalate around 10% year over year. Previously, the same was estimated to climb 6%.
The company’s recent agreement with AMFA will further elevate the costs associated with salaries, wages and benefits. The new labor pact will add approximately $30 million to salaries, wages and benefits costs in the first quarter. Meanwhile, the same is envisioned at $42 million for 2019. Further, fuel costs are expected to be approximately $2.05 per gallon for the first quarter (past forecast was in the band of $2-$2.05).
Zacks Rank & Key Picks
Southwest carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Azul (AZUL - Free Report) , SkyWest, Inc. (SKYW - Free Report) and Swire Pacific Ltd. (SWRAY - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Azul, SkyWest and Swire Pacific have gained more than 2%, 20% and 17%, respectively, on a year-to-date basis.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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