However, higher costs are likely to pressure earnings. The
company expects operating costs per available seat mile (CASM), ex-fuel, to increase
11.5-12.5% year-over-year in the second quarter versus its prior range of 10.5-12.5%,
mainly due to lower capacity.
The grounding of the Boeing 737 Max jets hurt Southwest’s
capacity levels meaningfully during the quarter. The company expects capacity
to decrease around 3.5% year-over-year versus its previous range of 2-3%,
mainly due to a lower-than-expected completion factor.
Southwest also expects fuel efficiency to decrease 1-2% due
to the removal of its most fuel-efficient aircraft from its schedule because of
the Boeing 737 Max grounding.
In the first quarter of 2019, Southwest topped earnings estimates while revenues were in line with expectations. Revenues grew 4% to $5.15 billion while adjusted EPS fell 7% to $0.70. RASM grew 2.7% on a 2.6% passenger revenue yield increase. CASM, ex-fuel, rose 8.1%.
Southwest’s shares have gained 15% so far this year and 4% in the past three months. The company’s rival JetBlue Airways (NASDAQ: JBLU) reported Q2 2019 earnings results, which beat expectations, on Tuesday. Another competitor American Airlines (NASDAQ: AAL) will report results on Thursday, July 25.