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Southwest Airlines (LUV) Tops Q4 EPS by 7c, Offers Outlook

January 23, 2020 6:32 AM EST

Southwest Airlines (NYSE: LUV) reported Q4 EPS of $1.16, $0.07 better than the analyst estimate of $1.09. Revenue for the quarter came in at $5.73 billion versus the consensus estimate of $5.72 billion.

Outlook:

The Company's fourth quarter 2019 total operating revenues increased 0.4 percent, year-over-year, to a fourth quarter record $5.7 billion, on 0.9 percent fewer available seat miles (ASMs, or capacity), year-over-year, due to the MAX groundings. Fourth quarter 2019 operating revenue per ASM (RASM, or unit revenues) increased 1.3 percent, year-over-year, driven primarily by another strong performance from our Rapid Rewards loyalty program, as well as a passenger revenue yield increase of 1.5 percent, offset slightly by a load factor decline of 0.4 points, to 83.1 percent. Fourth quarter 2019 RASM performed in line with Company expectations and benefited year-over-year by two to three points primarily due to the removal of MAX flights that resulted in lower fourth quarter 2019 capacity; however, this benefit was substantially offset by the negative year-over-year RASM effects from adjusting the Company's previously-published fourth quarter 2019 flight schedule. The Company's adjustments to remove the MAX aircraft from its fourth quarter 2019 flight schedule resulted in a uniform week-to-week schedule over the peak holiday period relative to fourth quarter 2018, which was necessary to produce the schedule with limited time and minimize disruption to Customers and the Company's operations. As a result, there was more year-over-year flying in off-peak periods and—due to the MAX groundings and the resulting fleet deficit—less year-over-year flying in peak periods than optimal.

Currently, passenger booking and revenue trends remain healthy, and the Company expects first quarter 2020 RASM to increase in the range of 3.5 to 5.5 percent, year-over-year. The Company's outlook for first quarter 2020 year-over-year RASM includes an estimated 1.5 point tailwind—approximately one point due to the negative impact to passenger bookings from the U.S. government shutdown during first quarter 2019 and approximately one-half point related to unscheduled maintenance disruptions and related flight cancellations during first quarter 2019. Additionally, first quarter 2020 year-over-year RASM is expected to benefit by approximately two points due to the removal of MAX flights, which will result in lower first quarter 2020 capacity.

Annual 2019 total operating revenues increased 2.1 percent, year-over-year, to a record $22.4 billion, on 1.6 percent fewer ASMs due to the MAX groundings. Annual 2019 RASM was a record 14.26 cents, and increased 3.7 percent, year-over-year, largely driven by a passenger revenue yield increase of 3.1 percent, year-over-year, as well as solid passenger demand. Approximately one point of the year-over-year unit revenue increase in annual 2019 results was driven by lower 2019 capacity as a result of the MAX groundings.

For earnings history and earnings-related data on Southwest Airlines (LUV) click here.



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