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Southwest Airlines (LUV) Tops Q3 EPS by 36c

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October 22, 2020 6:36 AM EDT

Southwest Airlines (NYSE: LUV) reported Q3 EPS of ($1.99), $0.36 better than the analyst estimate of ($2.35). Revenue for the quarter came in at $1.8 billion versus the consensus estimate of $1.7 billion.

Revenue Results and Outlook
The Company's third quarter 2020 operating revenues decreased 68.2 percent, year-over-year, to $1.8 billion, as a result of continued negative impacts to passenger demand and bookings due to the pandemic. Third quarter 2020 operating revenue per ASM (RASM, or unit revenues) was 6.78 cents, a decrease of 52.7 percent, driven by a load factor decrease of 38.6 points and a passenger revenue yield decrease of 23.1 percent, all year-over-year.
Following the modest improvements in passenger demand and bookings in May and June 2020, the Company experienced a stall in improving revenue trends in July 2020, due to the rise in COVID-19 cases. In August and September 2020, the Company again experienced modest improvements in close-in leisure passenger demand and bookings. The following monthly table presents selected revenue and load factor results for third quarter 2020:
July 2020 August 2020 September 2020
Operating revenue year-over-year Down 70.6% Down 68.5% Down 64.8%
Previous estimation Down 70% to 75% Down 70% Down 65% to 70%
Load factor 42.6% 42.2% 51.5%
Previous estimation Approximately 43% Approximately 42% 45% to 50%
Thus far, the Company continues to experience modest improvements in close-in leisure passenger demand in October and bookings for November. The following monthly table presents selected preliminary estimates of revenue and load factor for October and November:
October 2020 November 2020
Operating revenue year-over-year Down 65% to 70% Down 60% to 65%
Previous estimation Down 65% to 75% (a)
Load factor 50% to 55% 50% to 55%
Previous estimation 45% to 55% (a)
(a) No previous estimation provided.
The Company has continued to make progress on its global distribution system (GDS) initiative, now at industry-standard participation, including Airline Reporting Corporation (ARC) ticketing and settlement with Amadeus, in addition to its second quarter 2020 launch with Travelport's GDS platforms: Apollo, Worldspan, and Galileo. The Company's enhancement of its GDS channel strategy complements its expansion of direct connect via Airline Tariff Publishing Company's (ATPCO) New Distribution Capability (NDC) Exchange and existing SWABIZ® options, with the goal of distributing its everyday low fares to more business travelers through their preferred channel
Fleet and Capacity
The Company returned two leased 737-700 aircraft and retired one owned 737-700 aircraft during third quarter 2020, ending the quarter with 734 aircraft in its fleet. The Company expects to return three leased 737-700 aircraft during fourth quarter 2020. The Company has not received any 737 MAX aircraft deliveries from Boeing since February 2019. As previously disclosed, the Company has an agreement with Boeing to take no more than 48 MAX aircraft through December 31, 2021. The timeline and quantity of deliveries through 2021 is not yet finalized. However, the Company is currently in discussions with Boeing to restructure its order book, and continues to evaluate its fleet needs in light of current demand trends. Beyond 2021, the Company currently has 217 firm orders and 115 options for MAX aircraft in its order book. Additional information regarding the Company's contractual aircraft delivery schedule is available in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2020.

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


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