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Southwest's Revenue Expectations Improve as Demand Picks Up
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With easing travel restrictions, Southwest Airlines Co. (LUV - Free Report) has been seeing improvement in passenger demand since early May, as a result of which new passenger bookings have been outpacing trip cancellations.
Owing to this uptick in demand, the airline’s operating revenues declined 85-90% year over year in May with capacity decreasing approximately 64% and load factor (percentage of seats filled by passengers) at around 30%. This is better than the 90-95% plunge in April operating revenues. April capacity decreased approximately 58% year over year, while load factor was a mere 8%.
For June, Southwest anticipates operating revenues to fall 70-75% year over year with capacity declining 40-50%. Load factor in the period is estimated in the 40-50% range. Previously, the company predicted June operating revenues to decline in the range of 80-85% with capacity anticipated to decrease 45-55% and load factor to be at 35-45%.
Revenues are expected to improve further in July. The carrier forecasts operating revenues to slide in the 65-70% range in July, with capacity anticipated to decline 25-35% and load factor expected in the band of 45-55%.
In the second quarter of 2020, capacity is expected to reduce in the 50-60% range. Economic fuel costs are predicted between $1.25 and $1.35 per gallon in the same period. Previously, the company estimated second-quarter fuel costs in the band of $1-$1.10 per gallon.
Thanks to modest improvement in passenger numbers, Southwest anticipates average daily core cash burn of $20-$25 million in second quarter, better than the previous expectation of an approximate $25 million daily cash burn. Additionally, the carrier now expects liquidity of approximately 24 months, compared with its previous estimation of an approximate 20 months of liquidity. This expectation for a stronger liquidity position is based on Southwest’s current cash and short-term investments of $13.9 billion, the remaining amount of $978 million to be received from the payroll support program in two installments in June and July, and an estimated $20 million of average daily cash burn in June.
The Zacks Consensus Estimate for Scorpio Tankers’ current-year earnings has been revised upward in excess of 100% in the past 60 days.
The Zacks Consensus Estimate for Teekay Tanker’s current-year earnings has been revised 35.6% upward in the past 60 days.
The Zacks Consensus Estimate for Frontline’s current-year earnings has been revised 17.1% upward in the past 60 days.
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
This young company’s gigantic growth was hidden by low-volume trading, then cut short by the coronavirus. But its digital products stand out in a region where the internet economy has tripled since 2015 and looks to triple again by 2025.
Its stock price is already starting to resume its upward arc. The sky’s the limit! And the earlier you get in, the greater your potential gain.
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Southwest's Revenue Expectations Improve as Demand Picks Up
With easing travel restrictions, Southwest Airlines Co. (LUV - Free Report) has been seeing improvement in passenger demand since early May, as a result of which new passenger bookings have been outpacing trip cancellations.
Owing to this uptick in demand, the airline’s operating revenues declined 85-90% year over year in May with capacity decreasing approximately 64% and load factor (percentage of seats filled by passengers) at around 30%. This is better than the 90-95% plunge in April operating revenues. April capacity decreased approximately 58% year over year, while load factor was a mere 8%.
For June, Southwest anticipates operating revenues to fall 70-75% year over year with capacity declining 40-50%. Load factor in the period is estimated in the 40-50% range. Previously, the company predicted June operating revenues to decline in the range of 80-85% with capacity anticipated to decrease 45-55% and load factor to be at 35-45%.
Southwest Airlines Co. Price
Southwest Airlines Co. price | Southwest Airlines Co. Quote
Revenues are expected to improve further in July. The carrier forecasts operating revenues to slide in the 65-70% range in July, with capacity anticipated to decline 25-35% and load factor expected in the band of 45-55%.
In the second quarter of 2020, capacity is expected to reduce in the 50-60% range. Economic fuel costs are predicted between $1.25 and $1.35 per gallon in the same period. Previously, the company estimated second-quarter fuel costs in the band of $1-$1.10 per gallon.
Thanks to modest improvement in passenger numbers, Southwest anticipates average daily core cash burn of $20-$25 million in second quarter, better than the previous expectation of an approximate $25 million daily cash burn. Additionally, the carrier now expects liquidity of approximately 24 months, compared with its previous estimation of an approximate 20 months of liquidity. This expectation for a stronger liquidity position is based on Southwest’s current cash and short-term investments of $13.9 billion, the remaining amount of $978 million to be received from the payroll support program in two installments in June and July, and an estimated $20 million of average daily cash burn in June.
Zacks Rank & Key Picks
Southwest carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are Scorpio Tankers Inc. (STNG - Free Report) , Teekay Tankers Ltd. (TNK - Free Report) and Frontline Ltd (FRO - Free Report) . While Frontline sports a Zacks Rank #1 (Strong Buy), Scorpio Tankers and Teekay Tankers carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Scorpio Tankers’ current-year earnings has been revised upward in excess of 100% in the past 60 days.
The Zacks Consensus Estimate for Teekay Tanker’s current-year earnings has been revised 35.6% upward in the past 60 days.
The Zacks Consensus Estimate for Frontline’s current-year earnings has been revised 17.1% upward in the past 60 days.
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
This young company’s gigantic growth was hidden by low-volume trading, then cut short by the coronavirus. But its digital products stand out in a region where the internet economy has tripled since 2015 and looks to triple again by 2025.
Its stock price is already starting to resume its upward arc. The sky’s the limit! And the earlier you get in, the greater your potential gain.
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