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Southwest Airlines Soared on Q1 Earnings and Revenue Beat

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Southwest beats estimates

Southwest Airlines (LUV) was trading ~3% higher during pre-market trading today after the company reported better-than-expected results for the first quarter. The company reported impressive quarterly results despite cancellations of over 10,000 flights during the quarter due to multiple reasons.

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Southwest Airlines’ first-quarter adjusted EPS of $0.70 was way ahead of analysts’ estimate of $0.61. However, the adjusted EPS decreased by 6.7% YoY due to sluggish revenue growth and increased operating expenses.

Southwest Airlines’ first-quarter revenues of $5.15 billion came in ahead of analysts’ expectations of $5.12 and grew 4.1% YoY mainly due to an increase in unit revenue. The company’s unit revenues for the quarter rose 2.7% due to a 2.6% increase in the passenger revenue yield.

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However, the YoY growth in the company’s total revenues was partially offset by a negative impact from the load factor declining by 50 basis points to 81%. Furthermore, Southwest Airlines posted a loss of $200 million in first-quarter revenues due to flight cancellations. During the quarter, over 10,000 flights were canceled due to severe winter weather, the government shutdown, unscheduled maintenance disruptions, and the grounding of Boeing’s (BA) 737 MAX series planes.

The company’s total operating expenses increased 7.3% YoY to $4.64 billion due to underutilization of fleets, flight cancellations, higher maintenance events, and the impact of labor contract agreements with mechanics. Southwest Airlines’ adjusted ex-fuel CASM (cost per available seat mile) increased 5.1% YoY to 9.58 cents. The first-quarter jet fuel cost per gallon was $2.05, 1.9% lower than the $2.09 in the first quarter of 2018.

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Southwest Airlines ended the first quarter with cash and short-term investments of $3.9 billion. During the quarter the company generated operating and free cash flows of $1.1 billion and $945 million, respectively. The airline continues enhancing shareholders’ wealth through share buybacks and dividend payments. In the first quarter, it returned $678 million to its shareholders.

Peers’ performance

Southwest Airlines’ major competitors Delta Air Lines (DAL) and United Airlines (UAL) reported a 28% and 130% YoY increase in their respective first-quarter earnings. Other US air carriers (IYT) Hawaiian Airlines (HA) and JetBlue Airways (JBLU) reported a YoY decline of 38.5% and 40.7% in their respective first-quarter adjusted EPS.

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