Southwest Airlines Co. LUV reported first-quarter 2018 earnings per share (excluding 4 cents from non-recurring items) of 75 cents, in line with the Zacks Consensus Estimate. The bottom line however, surged on a year-over-year basis.
Operating revenues of $4,944 million lagged the Zacks Consensus Estimate of $5,017.6 million. However, the top line improved year over year and was boosted by high passenger revenues accounting for bulk (92.7%) of the same.
Operating Statistics
Airline traffic, measured in revenue passenger miles, nudged up 3.7% year over year to 30.44 billion in the quarter under review. Capacity or available seat miles (ASMs) inched up 1.8% to 37.37 billion. Load factor (percentage of seats filled by passengers) came in at 81.5%, up 160 basis points on a year-over-year basis as traffic growth exceeded capacity expansion.
Passenger revenue per available seat mile (PRASM: a key measure of unit revenues) slid 1% to 12.27 cents. In the reported quarter, revenue per available seat mile (RASM) was flat year over year at 13.23 cents.
Southwest Airlines Co. Price, Consensus and EPS Surprise
Southwest Airlines Co. Price, Consensus and EPS Surprise | Southwest Airlines Co. Quote
Operating Expenses & Income
In the first quarter, operating income (as reported) came in at $616 million compared with $606 million in the prior-year quarter. Excluding special items, the operating income was $584 million, up 1.7%. Total adjusted operating expenses (excluding profit sharing, fuel and oil expense plus special items) increased 1.4% year over year.
Fuel price per gallon (inclusive of fuel tax: economic) climbed 3% year over year to $2.09. Consolidated unit cost or cost per available seat mile (CASM) excluding fuel, oil and special items dipped 0.3% year over year to 8.92 cents.
Liquidity
The company had cash and cash equivalents of $1,822 million at the end of the first quarter of 2018 compared with $1,495 million at the end of 2017. As of Mar 31, 2018, the company had a long-term debt (less current maturities) of $3,227 million compared with $3,320 million at 2017end.
While the carrier generated a cash flow of $708 million at the end of the first quarter, it returned $648 million to its shareholders through dividends and share repurchases.
Q2 & 2018 Guidance
For the second quarter of 2018, the carrier expects revenue per available seat mile (RASM) to decline between 1% and 3%. This dismal outlook is due to softness in bookings following the recent fatal incident at the carrier.
Second-quarter unit costs excluding fuel and oil expense and profit-sharing expense are estimated to increase 1-2%. While economic fuel costs are projected at $2.20 per gallon.
For 2018, the metric is anticipated to be flat compared with the 2017 figure. Previously, the metric was forecast to rise 2% year over year.
Zacks Rank & Key Picks
Southwest Airlines carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the airline space are Cathay Pacific Airways Ltd. CPCAY, Gol Linhas Aereas Inteligentes S.A. GOL and SkyWest, Inc. SKYW, each with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of Cathay Pacific Airways, Gol Linhas and SkyWest have gained more than 11%, 75% and 53%, respectively, in a year.
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