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Can Southwest Airlines’ Unit Revenue Turn Positive in 2Q17?

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2Q17 estimates

For the second quarter of 2017, analysts are estimating Southwest Airlines’ revenue to rise 6.2% YoY (year-over-year) to $5.7 billion. For 3Q17, revenue is expected to rise to 6.5% YoY with sales of $5.3 billion. For 4Q17, sales are expected to rise 4.0% YoY to $5.3 billion.

This would take 2017 revenue growth to 4.6% YoY, or $21.4 billion. Revenue growth is expected to accelerate to 5.7% in 2018, similar to growth in 2015.

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Unit revenues to help

For 1Q17, LUV’s airfare fell 2.6% YoY to $149.78. That led to a unit revenue fall of 2.8% YoY to 13.3 cents. Low-cost carriers JetBlue Airways (JBLU) and Spirit Airlines (SAVE), as well as niche legacy player Alaska Air (ALK), also reported declining unit revenues in the first quarter.

By contrast, legacy carriers Delta Air Lines (DAL), American Airlines (AAL), and United Continental Holdings (UAL) reported positive growth in yields for the first quarter of 2017.

Outlook reduced

Southwest Airlines continues to expect the trend to change from the second quarter of 2017. It has maintained its guidance of RASM (revenue per available seat mile) growth of 1.0%–2.0% YoY in the second quarter.

You can gain exposure to Southwest Airlines by investing in the iShares Russell Mid-Cap (IWR), which holds approximately 0.50% in LUV.

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