Southwest Airlines Gains Premarket


Jan. 28 2016, Updated 4:13 p.m. ET

Southwest missed 4Q15 revenue estimates

Southwest Airlines Company (LUV) announced its fourth quarter earnings on January 21, 2016. The airline fell slightly short of the consensus estimates for revenues while its EPS (earnings per share) came in line with estimates. Notably, the company’s revenues grew by 7.6% on a YoY (year-over-year) basis to $4.98 billion, missing analyst estimates by 0.4%. But Southwest reported EPS of $0.9, which met analysts’ estimates for that quarter.

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Despite everything, lukewarm markets

Despite missing estimates, Southwest’s stock was up by 0.5% at the end of January 21, when the company released its 4Q15 earnings. However, the stock was already up 1.5% premarket, mainly because of the company’s strong 2016 guidance for unit revenues and fuel costs, which we’ll discuss in detail later in this series (see Part 2).

Southwest’s full-year performance

The airline’s stock did not have a strong year on the market, gaining by only 3% during 2015. This is lower than other regional peers JetBlue Airways Corporation (JBLU) and Allegiant Travel Company (ALGT), which gained by 45% and 16% respectively, that year. Interestingly, Spirit Airlines (SAVE) was the biggest loser among regional players, dropping by 48% in 2015, mainly on account of heavily declining utilization and yields.

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Because air travel is a discretionary spend, it also makes sense to compare the airline industry performance to the consumer discretionary sector. Notably, the consumer Discretionary SPDR ETF (XLY) rose by 8% during 2015. The broader market tracked by the SPDR S&P 500 ETF Trust (SPY) slipped down by more than 2.1% during the year.

Your Southwest Airlines series overview

In this series, we’ll analyze Southwest’s performance for 4Q15 and fiscal 2015. We’ll also discuss the company’s margins, leverage, dividend payouts, analyst estimates, and valuation multiple. We’ll include a discussion of the impact of cheap crude on the company’s business and analyze the factors that are expected to drive the company’s growth in 2016, pointing out key indicators for investors.

Let’s begin with Southwest’s operational performance.


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