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Southwest Airlines' 1Q17 Earnings: High Costs Prevent Takeoff

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Southwest Airlines' 1Q17 Earnings: High Costs Prevent Takeoff PART 1 OF 9

Why Southwest Stock Fell after Reporting 1Q17 Earnings

Southwest beats 1Q17 estimates

Southwest Airlines (LUV) reported 1Q17 earnings on April 27, 2017. The airline missed consensus estimates for both its revenues as well as earnings per share (or EPS). Revenues rose 1.2% year-over-year (or YoY) to $4.88 billion, missing analyst estimates of $4.89 billion. It reported earnings per share of $0.61, which also missed analyst estimates of $0.63 for the quarter.

Why Southwest Stock Fell after Reporting 1Q17 Earnings

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Markets punish stock

Markets punished Southwest stock as a result, with LUV stock losing almost 4.3% in early morning trade. The stock, however, recovered later in the day to end the day with a 2% loss at $55.8.

American Airlines (AAL) also reported earnings on the same day. Its disappointing earnings led to a fall of 5.2% to $43.9. Alaska Air Group (ALK), which reported earnings on April 26, also fell 3.8%, followed by Allegiant Travel (ALGT) with a 2.3% loss and Delta (DAL) with a 1.4% loss. United Continental (UAL) also lost 0.88%, while Spirit Airlines (SAVE) lost 0.72% and JetBlue Airways (JBLU) lost 0.49%.

Because air travel falls into the discretionary category, it also makes sense to compare the performance of the airline industry with the consumer discretionary sector’s performance. The Consumer Discretionary SPDR ETF (XLY) rose 0.53% on the same day. The broader market tracked by the SPDR S&P 500 ETF (SPY) has also risen 0.08%.

Series overview

In this series, we will analyze LUV’s performance for 1Q17 and discuss what factors are expected to drive LUV’s growth in 2017. Plus, we’ll discuss management’s future outlook and the stock’s valuation multiples.

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