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Southwest Airlines Stock Rose 4% after Its Q4 Earnings

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Jan. 24 2019, Updated 8:30 a.m. ET

Southwest Airlines

On January 24, Southwest Airlines (LUV) shares were trading ~4% higher in the pre-market trading session. The company reported better-than-expected fourth-quarter results. The airline’s top and bottom-line results increased significantly on a YoY (year-over-year) basis.

Southwest Airlines’ fourth-quarter adjusted EPS of $1.17 was way ahead of analysts’ estimate of $1.07. The adjusted EPS increased ~52% YoY. Strong revenue growth, efficient cost management, the lower tax rate, and reduced outstanding shares due to the company’s aggressive share repurchase program mainly drove its fourth-quarter earnings.

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Southwest Airlines’ fourth-quarter revenues increased 8.5% YoY to $5.7 billion—higher than analysts’ expectations of $5.67 billion. Strong travel demand and an increase in the unit revenue mainly drove the company’s fourth-quarter revenues higher. Southwest Airlines’ unit revenues for the quarter rose 1.8% due to a 3.7% increase in the passenger revenue yield.

However, the YoY growth in Southwest Airlines’ total revenues was partially offset by a negative impact from the load factor declining by 150 basis points. The load factor was 83.5% in the fourth quarter.

The operating expenses increased 8.1% YoY to $4.9 billion due to higher jet fuel costs. The fourth-quarter jet fuel cost per gallon was $2.25—4.2% higher than $2.16 in the fourth quarter of 2017. The fourth-quarter adjusted operating income increased 14.8% YoY to $820 million.

Major US air carriers (IYT) Delta Air Lines (DAL) and United Airlines’ (UAL) fourth-quarter adjusted EPS increased 35.4% and 72%. American Airlines (AAL) is scheduled to report its fourth-quarter results on January 24.

Outlook

Southwest Airlines expects the travel demand to remain strong throughout 2019. However, the airline expects the ongoing government shutdown to have a negative impact on its January revenues in the range of $10 million–$15 million.

Southwest Airlines provided an optimistic outlook for the first quarter The company expects the unit revenues to increase 4%–5% in the first quarter. The fuel costs are expected to be $2.00–$2.05 per gallon in the first quarter. The first-quarter ex-fuel CASM (cost per available seat mile) is expected to expand 6% YoY.

For fiscal 2019, the fuel cost is expected to be $2.00–$2.10. The ex-fuel CASM is projected to rise 3.0%–3.5%.

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