Fuel costs to increase
Due to increasing crude oil prices, Southwest Airlines (LUV) expects fuel costs to rise more in the third quarter. It expects a rise of $2.25 per gallon, which is slightly higher than $2.21 per gallon that it guided for after its second-quarter results. In the second quarter of 2017, the price of fuel was $1.99 per gallon.
The rise in fuel costs takes into account rising fuel costs, premium expenses, and cash settlements on LUVs fuel derivative contracts.
Unit cost to rise
As we saw in Part 1 of this series, Southwest Airlines had to cancel many flights due to hurricanes and tropical storms. That could have a 0.5%–1% negative impact on the airline’s unit costs. Its CASM (cost per available seat mile), excluding fuel and oil expenses and profit shares, is expected to rise 3%–3.5% YoY (year-over-year.
In its second-quarter earnings release, Southwest Airlines forecast unit revenue of -1%–1.5% YoY. It expects 0.5%–1% unit revenue advantage due to cancellations. As a result, its RASM (revenue per available seat mile) is expected to be 1%–1.5%.
To know about the unit revenue performance of LUV’s competitors Delta Air Lines (DAL), JetBlue (JBLU), United Continental (UAL), and Alaska Air (ALK), be sure to visit Market Realist’s Industrials page. Southwest Airlines makes up 0.91% of the total holdings of the iShares US Consumer Services ETF (IYC).