Southwest Q2’16 Earnings Preview: Capacity Growth To Partially Offset The Impact Of Declining PRASM
Key Trends:
- Southwest continues to grow its capacity at a high rate of 4%-5% in the June quarter by optimizing its domestic network, and expanding internationally to Canada, the Caribbean, and Latin America. The strong capacity growth is likely to partially offset the impact of declining PRASM.
- Recovery in crude oil prices in the last three months has resulted in the airline revising its 2Q’16 fuel price guidance upwards to $1.80-$1.85 per gallon from $1.75-$1.80 per gallon. This could lead to a contraction in the airline’s operating margins.
- To offset the impact of rising fuel costs, the airline is undertaking various fuel saving initiatives such as the use of electronic flight bags, single engine taxi, and split scimitar winglets. These initiatives are likely to improve the airline’s fuel efficiency and curb its fuel consumption.
- Southwest expects its unit costs, excluding fuel costs, to increase up to 2% in the second quarter, primarily due to higher personnel costs during the quarter.
- An accelerated plan to retire its Classic fleet by 3Q’17 is expected to help the airline manage its operating costs in the coming quarters.
Have more questions about Southwest Airlines (NYSE:LUV)? See the links below:
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Southwest Airlines
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