Southwest Airlines (LUV) Beats On Q3 Earnings & Revenues

Low cost carrier, Southwest Airlines Co. (NYSE:LUV) reported impressive results for the third quarter of 2016. The company beat earnings estimates and delivered better-than-expected revenues. The carrier’s earnings per share (on an adjusted basis) of 93 cents beat the Zacks Consensus Estimate of 88 cents.

Southwest Airlines reported revenues of $5,139 million, which edged past the Zacks Consensus Estimate of $5,132 million. Revenues inched up 3.4% year over year. Passenger revenues accounted for the bulk of the top line. Revenues declined 1% on a year-over-year basis.

Operating Statistics

Airline traffic, measured revenue passenger miles, increased 4.1% year over year to 32.31 billion in the quarter under review. Capacity or available seat miles expanded 4.2% to 37.88 billion. Load factor (percentage of seats filled by passengers) came in at 85.3% compared with 85.4% in the year-ago quarter as capacity expansion outweighed traffic growth. Passenger revenue per available seat mile (PRASM) fell 5% year over year to 12.32 cents. In the reported quarter, revenue per available seat mile (RASM) was 13.57 cents, down 4.1% year over year.

Operating Expenses & Income

In the third quarter, operating income came in at $695 million as against $1.2 billion in the prior-year quarter. Excluding special items, operating income was $972 million. Total adjusted operating expenses increased 8.6% year over year to $4,444 million. Fuel price (economic) was $2.02 per gallon as against $2.20 a year ago. Consolidated unit cost or cost per available seat mile (CASM), excluding fuel, oil and special items, decreased 0.2% year over year to 8.26 cents.

Southwest Airlines has been striving to improve its operational efficiency. The Zacks Rank #5 (Strong Sell) company faces tough competition from peers such as JetBlue Airways Co. (NASDAQ:JBLU) , Spirit Airlines Inc. (NASDAQ:SAVE) and Hawaiian Holdings Inc. (NASDAQ:HA) , all of which carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Liquidity

At the end of the third quarter, Southwest Airlines had $3.4 billion in cash and short-term investments compared with $3.1 billion at the end of 2015. In the reported quarter, the company had long-term debt (less current maturities) of $2,323 million as against $2,541 million at the end of 2015. The carrier generated free cash flow of $392 million in the quarter and returned $312 million to shareholders through buybacks and dividend payments.

Fourth-Quarter Guidance

Southwest Airlines anticipates RASM to decline in the band of 4–5% year over year in the fourth quarter. Fuel costs (economic) are projected to be $2.10 per gallon.

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