For the third quarter of 2017, Southwest Airlines’ (LUV) revenues grew 2.5% year-over-year (or YoY) to $5.3 billion, missing analyst estimates of $5.7 billion in revenues.
LUV’s net income fell 9.3% to $528.0 million, leading to earnings per share of $0.88, which just managed to beat analysts’ estimates of $0.87 per share.
Southwest Airlines’ (LUV) capacity for the quarter rose 3.1% YoY to ~39.1 billion miles. Its traffic growth lagged capacity with 2.5% YoY growth to ~33.1 billion miles. The airline’s average passenger fare for the quarter fell 2.2% YoY, leading to the unit revenue decline of 0.5% YoY to 13.5 cents.
LUV’s cost per available seat mile (or CASM ex-fuel) and special items rose 3.3% YoY. This increase was due to the rise in pilot and flight attendant wages, effective 3Q16. Despite increasing crude oil prices, fuel costs declined 1.0% YoY to $2.00 per gallon, thanks to LUV’s fuel hedging.
LUV’s 3Q17 results are laudable, as the airline was able to produce strong results despite being hit hard by Hurricanes Irma and Harvey. It was also subject to an airfare war in several hubs by virtue of sharing them with United Continental (UAL), which has decided to take on its competitors aggressively.
Southwest’s management expects a stable revenue environment in Qthe fourth quarter of 2017. Passenger yields have also improved month-over-month in October. As a result, Southwest Airlines expects revenues per available seat mile (or RASM), also known as unit revenues, to improve ~1.5% YoY.
LUV also expects its CASM ex-fuel and oil expenses, special items, and profit sharing to be in the range of flat to up 1.5% YoY. Its 2018 costs are expected to rise more slowly. One reason for this increase is the impact of wage increases that would no longer be felt from 4Q17 onward. Also, LUV’s ongoing fleet modernization is improving its fleet efficiency.
In the next article, we’ll look at how JetBlue Airways performed in 3Q17.