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Southwest Airlines (LUV) Beats on Earnings & Revenues in Q2

Low-cost carrier Southwest Airlines Co. LUV reported better-than-expected earnings and revenues in the second-quarter of 2017. The carrier’s earnings per share (on an adjusted basis) of $1.24 beat the Zacks Consensus Estimate of $1.20. Earnings, improved 4.20% on a year over year basis.

Operating revenues of $5,744 million was marginally above the Zacks Consensus Estimate of $5733.2 million. Revenues also improved 6.69% year over year. Passenger revenues accounted for the bulk (91.1%) of the top line. 

Operating Statistics

Airline traffic, measured in revenue passenger miles increased 5.1% year over year to $34.38 billion in the quarter under review. Capacity or available seat miles (ASMs) expanded 5.1% to $40.17 billion. Load factor (percentage of seats filled by passengers) came in at 85.6%, flat on a year over year basis, as capacity expansion was in line with traffic growth. Passenger revenue per available seat mile (PRASM: a key measure of unit revenue) increased 1.5% to 13.03 cents. In the reported quarter, revenue per available seat mile (RASM) was 14.30 cents, up 1.5% year over year.

Operating Expenses & Income

In the second quarter, operating income came in at $1,250 million compared with $1,276 million in the prior-year quarter. Excluding special items, operating income was $1,212 million, down 4.3%. Total adjusted operating expenses (excluding profit-sharing, fuel and oil expense, and special items) increased 10.6% year over year. Fuel price per gallon (inclusive of fuel tax: economic) climbed 6.6% year over year to $1.93. Consolidated unit cost or cost per available seat mile (CASM) – excluding fuel, oil and special items –increased 4.4% year over year to 8.70 cents.

Southwest Airlines Company Price, Consensus and EPS Surprise


Southwest Airlines Company Price, Consensus and EPS Surprise | Southwest Airlines Company Quote


This Zacks Rank #2 (Buy) had cash and cash equivalents of $1,537 million at the end of the second quarter, compared with $1,680 million at the end of 2016. As of Jun 30, 2017, the company had long-term debt (less current maturities) of $2,788 million compared with $2,821 million at the end of 2016. While the carrier generated free cash flow of $195 million in second-quarter 2017, it returned $476 million to shareholders through a combination of dividends and share repurchases. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  


The company expects RASM growth of approximately 1% year over year in the third quarter of 2017. This is inclusive of an estimated year-over-year negative impact from the transition to the new reservation system of around one point. Economic fuel costs in the third quarter are still expected in the range of $1.95-$2.00 per gallon. Unit costs (excluding fuel and oil expenses, special items and profit sharing expenses) in the third quarter are expected to increase in the 2-3% range. The metric is expected to be in line with the year-ago level for the fourth quarter.

The subdued guidance and higher costs disappointed investors. Consequently, the stock declined in early trading despite the outperformance in the second quarter.

Upcoming Releases

Investors interested in the broader transportation space are keenly waiting for second-quarter earnings reports from key players like American Airlines Group, Inc. AAL, Copa Holdings, S.A. CPA and Air Lease Corporation AL. While American Airlines is scheduled to report second-quarter results on Jul 28, Copa Holdings and Air Lease will report the same on Aug 9 and Aug 3, respectively.

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