Southwest Airlines beats Q2 earnings estimates but revenues fall short

Southwest Airlines Co. (NYSE: LUV) reported better-than-expected earnings for the second quarter of 2019 but revenues fell short of estimates, sending the stock tumbling 4.7% in premarket hours on Thursday.    

Total operating revenues grew 2.9% year-over-year to $5.90 billion but came in shy of forecasts of $5.94 billion. Passenger revenues increased 2.4% to $5.4 billion.  

Net income was $741 million, or $1.37 per share, compared with $733 million, or $1.27 per share, in the year-ago period. Analysts had forecast EPS of $1.34.  

Unit revenues (RASM) increased 6.8%, driven mainly by a passenger revenue yield increase of 4.2%, and a load factor increase of 1.7 points. Load factor reached an all-time quarterly record of 86.4%. Revenue passenger miles fell 1.7% while available seat miles (ASM) dropped 3.6%.

Total operating expenses rose 3.6% to $4.9 billion. Unit costs (CASM) increased 7.5%. Economic fuel costs were $2.13 per gallon compared to $2.21 per gallon in the year-ago quarter. Fuel efficiency decreased 1.7% year-over-year, due to the removal of the company’s most fuel-efficient aircraft from its schedule as a result of the MAX groundings.

For the third quarter of 2019, Southwest expects RASM to increase 3-5% versus last year. CASM, ex fuel, is expected to rise 9-11%. Available seat miles are expected to decrease 2-3%. Fuel efficiency is expected to decrease 1-2% year-over-year as a result of the MAX groundings. Economic fuel costs are estimated to be $2.05 to $2.15 per gallon.

For the full year of 2019, CASM, excluding fuel and oil expense and profit-sharing expense, is expected to increase 8-10% year-over-year. ASMs are expected to decrease 1-2% year-over-year.

Due to the delay in MAX deliveries, and based on current guidance from Boeing assuming regulatory approval of MAX return to service during the fourth quarter of 2019, Southwest now estimates its 2019 capital expenditures to be in the range of $1.2 billion to $1.3 billion, compared with its previous guidance in the range of $1.9 billion to $2 billion.

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