Southwest Airlines (LUV) is set to report its fourth-quarter earnings on Thursday before the bell. Investors were concerned about the increasing fuel costs, the US government shutdown and bad weather for the reduction in domestic travel. But, this headwinds could hurt the company’s results in the next quarter. Passenger revenues have been the major catalyst in air travel demand.
The airlines’ industry has been undergoing an uncertainty period where the pressure from various headwinds has stood as a hindrance in its profitability. After facing with rising fuel costs in 2018, the headwinds have started to rise with the US government shutdown and bad weather prompting to a reduction in domestic travel.
Investors have shared their concerns that the industry will face political uncertainty and fuel costs as a major hindrance to profitability in the next quarter. However, traders believe that on the back of a thriving economy, the air travel demand could increase and remained the major catalyst for driving passenger revenues.
The oil prices have fallen nearly 40% in the fourth quarter and this could enhance the bottom line as operating expenses are likely to be lesser. However, on a year-over-year basis, the fuel price estimate for the fourth quarter remained at a pretty high level. Investors will keenly await for reports from Southwest Airlines as it is America’s largest low-cost carrier.
Analysts expect Southwest Airlines to post earnings of $1.07 per share on revenue of $5.67 billion for the fourth quarter. In comparison, during the previous year quarter, the company reported a profit of $0.77 per share on revenue of $5.27 billion. Majority of the analysts recommended a “strong buy” or “buy” rating while expecting the stock to reach $60.78 in the next 52 weeks.
The results for the fourth quarter will be benefited by higher revenues as well as a decline in the federal income taxes. The outlook was lowered citing to a lower than expected improvement in the domestic market. It is expected that a strong travel demand would boost the carrier’s passenger revenues.
Shares of Southwest opened higher on Wednesday and is trading in the green territory. The stock has fallen over 22% in the past year and over 11% in the past three months.
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