Southwest Airlines Company LUV reported better-than-expected earnings and revenues in the fourth quarter of 2017. The carrier’s earnings per share (excluding $2.41 from non-recurring items) of 77 cents beat the Zacks Consensus Estimate of 76 cents. The bottom line also increased 4.1% on a year-over-year basis.
Operating revenues of $5,274 million surpassed the Zacks Consensus Estimate of $5,242.1 million. Also, the top line improved 3.9% year over year. Passenger revenues accounted for bulk (89.8%) of the same.
Operating Statistics
Airline traffic, measured in revenue passenger miles, nudged up 2.6% year over year to 32.19 billion in the quarter under review. Capacity or available seat miles (ASMs) expanded 2% to 37.89 billion. Load factor (percentage of seats filled by passengers) came in at 85%, up 60 basis points on a year-over-year basis as traffic growth was more than capacity expansion.
Passenger revenue per available seat mile (PRASM: a key measure of unit revenues) inched up 0.5% to 12.50 cents. In the reported quarter, revenue per available seat mile (RASM), was 13.92 cents, up 1.9% year over year.
Operating Expenses & Income
In the fourth quarter, operating income (as reported) came in at $773 million compared with $846 million in the prior-year quarter. Excluding special items, the operating income stood at $746 million, down 2.9%. Total adjusted operating expenses (excluding profit sharing, fuel and oil expense plus special items) climbed 6.2% year over year.
Fuel price per gallon (inclusive of fuel tax: economic) increased 1% year over year to $2.09. Consolidated unit cost or cost per available seat mile (CASM) — excluding fuel, oil and special items — rose 4.1% year over year to 9.17 cents.
Southwest Airlines Company Price, Consensus and EPS Surprise
Southwest Airlines Company Price, Consensus and EPS Surprise | Southwest Airlines Company Quote
Liquidity
The company had cash and cash equivalents of $1,495 million at the end of the fourth quarter of 2017 compared with $1,680 million at the end of the comparable period in 2016. As of Dec 31, 2017, this Zacks Rank #3 (Hold) company had a long-term debt (less current maturities) of $3,320 million compared with $2,821 million at the end of 2016.
While the carrier generated a cash flow of $1.8 billion at the end of 2017, it returned $1.9 billion to its 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.
Guidance
For the first quarter of 2018, the carrier expects revenue per available seat mile (RASM) to rise between 1% and 2%. First-quarter unit costs excluding fuel and oil expense, profit-sharing expense and special items are estimated to grow in the band of 0.5-1.5%. While economic fuel costs for the first quarter are predicted in the range of $2.10-$2.15 per gallon. For 2018, the metric is anticipated in the same range, reflecting an increase of 2% from the year-ago figure.
Upcoming Releases
Investors interested in the broader Transportation sector keenly await the fourth-quarter earnings reports from key players namely Hawaiian Holdings, Inc. HA, Allegiant Travel Co. ALGT and Union Spirit Airlines, Inc. SAVE. While Hawaiian Holdings is scheduled to report fourth-quarter earnings on Jan 29, Allegiant and Spirit Airlines is slated to release the same on Jan 31 and Feb 6, respectively.
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