Southwest Airlines April Traffic Strong; Maintains RASM View

Low-cost carrier Southwest Airlines Co. (NYSE:LUV) announced strong traffic numbers for Apr 2016, with revenue passenger miles (RPMs: a measure of air traffic) improving 4.7% on a year-over-year basis to 10.4 billion. Available seat miles (ASMs: a measure of capacity), on the other hand, grew 4.3% to 12.4 billion.

Another important metric – load factor (% of seats filled by passengers) – improved 30 basis points (bps) to 83.6% during the month as traffic growth outpaced capacity expansion. Interestingly, this marks the highest ever load factor recorded by the Dallas-based airline company in the month of April.

In the first four months of 2016, Southwest Airlines generated RPMs of 38.8 billion (up 8.4% year over year) and ASMs of 47.7 billion (up 7.9%), leading to a total load factor of 81.3% (up 40 bps).

Southwest Airlines continues to expect operating revenue per ASM (RASM: a key measure of unit revenue) to increase modestly in the second quarter of 2016.

The company reported encouraging first-quarter 2016 results, wherein both the top and bottom line surpassed the Zacks Consensus Estimate. Quarterly revenues were up 9.3% year over year to $4,826 million and above the Zacks Consensus Estimate of $4,818 million. On a year-over-year basis, Passenger and Other revenues increased 5.3% and 101%, respectively, while Freight revenues dropped 4.5%.

Zacks Rank & Key Picks

Southwest Airlines currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the airline space include International Consolidated Airlines Group (LON:ICAG), S.A. (OTC:ICAGY) , Ryanair Holdings plc (NASDAQ:RYAAY) and Air France-KLM SA (OTC:AFLYY) . All the three stocks carry a Zacks Rank #2 (Buy).

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