Southwest Airlines Q4 Earnings, Revs Top Estimates

Leading U.S. carrier Southwest Airlines Co. (LUV) reported impressive fourth-quarter 2014 financial numbers. The company reported earnings of 59 cents a share, surpassing the Zacks Consensus Estimate of 54 cents. This marks the carrier’s sixth consecutive quarter of record profits, achieved on the back of successful execution of its strategic initiatives.

Quarterly revenues moved up 4.5% year over year to $4,628 million, ahead of the Zacks Consensus Estimate of $4,590 million. On a year-over-year basis, Passenger and Freight revenues increased 5.1% and 12.2% respectively, while Other revenues fell 8.9%.

Operating Statistics

Airline traffic, measured in billions of revenue passenger miles, increased 4.3% year over year to 26.76 billion in the fourth quarter. Capacity or available seat miles decreased 2.4% to 33.79 billion, while load factor (percentage of seats filled with passengers) was 82% against 80.4% in the year-ago quarter. Passenger revenue per available seat mile (PRASM) increased 2.6% year over year to 13.5 cents.

Operating Expenses & Operating Income

In the fourth quarter, adjusted operating income scaled up to $621 million from $386 million a year ago, reflecting an operating margin of 13.4%. Total adjusted operating expenses fell 0.9% year over year to $4,007 million. Fuel price (economic) stood at $2.62 per gallon, down from $3.05 a year ago. Consolidated unit cost or cost per available seat mile (CASM), excluding fuel and special items, increased 2.3% year over year to 8.52 cents.

Liquidity

At the end of the fourth quarter, Southwest Airlines had $2,988 million in cash and short-term investments against $3,152 million in the year-ago quarter. The company had long-term debt (including current portion) of $2,434 million against $2,191 million in the last-year quarter. Southwest Airlines generated operating cash flow of $203 million in the quarter while capital expenditures totaled $467 million.

Southwest Airlines currently sports a Zacks Rank #1, implying Strong Buy.

Stocks to Consider

Other favorably-ranked stocks in the same industry are Delta Air Lines Inc. (DAL), American Airlines Group (AAL) and Hawaiian Holdings Inc. (HA). All three sport a Zacks Rank #1.