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Southwest Airlines Could Report Losses in Its Q1 Earnings


Apr. 27 2020, Published 7:33 a.m. ET

Southwest Airlines (NYSE:LUV) will likely report its results for the first quarter of 2020 after the market opens on Tuesday. Most US airlines will report their financial results in April. Currently, the airline industry’s situation isn’t good amid the COVID-19 pandemic. Domestic and international travel has stopped amid the lockdown. So far, Southwest has fallen 17.6% in April. Let’s take a look at what analysts expect from the company’s first-quarter earnings.

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Southwest Airlines could report dismal earnings

Southwest Airlines could be similar to all of the other airline companies in the first quarter. The airline industry has been struggling since the coronavirus hit. The demand is extremely low, which has contributed to the losses in the first quarter. Analysts expect Southwest Airlines to report a 14.07% YoY (year-over-year) decline in its revenue to $4.4 billion.

Southwest could also report a loss of $0.41 per share compared to a profit of $0.70 per share in the first quarter of fiscal 2019. Sequentially, the earnings might fall drastically from a profit of $1.16 in the fourth quarter of fiscal 2019. Southwest Airlines’ EBITDA could be 81.7% lower YoY to $146.4 million. Sequentially, the EBITDA could be lower compared to $1.1 billion in the fourth quarter.

Recently, United Airlines (NYSE:UAL) reported a preliminary loss of $2.1 billion in its first quarter. United also said that its revenue would be lower in the first quarter. The airline sold 22 planes to BOC Aviation to conserve cash. Last week, Delta Air Lines (NYSE:DAL) reported a loss of $0.51 per share, which was higher than analysts’ estimates. The revenue was 18% lower YoY to $8.6 billion in the first quarter.

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Financial aid for the airline industry amid COVID-19

The U.S. Department of the Treasury announced financial aid and payroll support for the airline industry under the CARES Act. On April 14, Southwest Airlines announced that it will receive aid under the Payroll Support Program of the CARES Act. The company expects to receive more than $3.2 billion. Notably, $2.3 billion would be direct-payroll support for the company’s more than 60,000 employees through the end of September. The remaining $1 billion would be a low-interest and ten-year unsecured term loan.

Delta Air Lines also expects to receive $5.4 billion in payroll support under the CARES Act. Meanwhile, United Airlines has secured $5.0 billion in financial aid, while JetBlue (NASDAQ:JBLU) received $935.8 million.

Analysts’ recommendations for Southwest stock

Currently, 18 analysts cover Southwest Airlines stock. Among the analysts, 11 recommend a “hold,” three recommend a “strong-buy,” three recommend a “buy,” and one recommends a “sell.” The average target price for the stock is $43.06. The target price depicts an upside potential of 47% for the stock as of the closing price on April 24. The stock closed 2.6% lower at $29.33 on April 24.

In April, many analysts cut the target prices for airline stocks including Southwest Airlines. Deutsche Bank cut the target price from $45 from $46. Cowen and Company cut the target price to $40 from $45, while Citigroup cut the target price to $35 from $40 this month.

Currently, analysts have a bearish view of most airline stocks. We don’t know when the pandemic will end or when domestic and international travel can resume. There are concerns that people might only travel when necessary, which could impact airlines’ demand.

Southwest Airlines has declined by 45.6% YTD, while United has fallen by 70.9%. Delta Air Lines has declined by 61.6%.

We’ll know more about how COVID-19 impacts the airline industry and Southwest Airlines’ plan for fiscal 2020 after the earnings. Stay with us to learn more.


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