Southwest’s Results Come In Line With Expectations, Fleet Issues To Remain
Southwest Airlines (NYSE:LUV) Southwest Airlines beat analyst expectations in the first quarter. This despite the issues it has faced with its 737 Max fleet being grounded during the quarter. The airline is uncertain as to when the aircraft will become operational again. We expect that the effect of the planes being grounded will affect earnings from the second half onward. But for the first quarter, the airline has seen improved results on the back of incremental expansion, in line with what the management has outlined for the company.
Our price estimate for Southwest Airlines is $66 per share, which is higher than its market price. View our interactive dashboard for Southwest Q1-2019 and modify the key drivers to visualize the impact on the company’s price estimate.
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Key Takeaways for the Quarter:
- Revenue came in at $5.15 billion, an increase of 4% from the same quarter in the previous year. The result was more or less in line with expectations from analysts.
- Passenger revenue miles increased by 1% for the quarter coming in at 31 million. With ASM (available seat miles), increasing by 1.4% for the quarter.
- The grounding of the 737 Max cost the airline $200 million for the quarter.
- RASM (revenue per average seat mile), grew by 2.7% for the quarter.
- Operating profits grew by 2.7% on the back of improved passenger yield; which grew by 2.75 for the quarter.
- Load factor remained steady at 81% for the quarter.
- The company repaid $99 million in debt for the quarter.
- The company saw a free cash flow of $945 mil in the first quarter.
What can we expect going forward?
Southwest’s management has decided that it won’t be doing much to change the operational outlook for the company. It expects to focus on the 737 issues throughout 2019. It will also look to focus on efficiency by removing inefficient routes, and cutting costs while it can. It also expects to reduce debt by $500 mil during the year. So that it can reassess how it plans to grow its business post-2020.
We believe that the company will face revenue headwinds in the second quarter with Southwest’s 737 Max fleet grounded. We don’t believe that the issue will be resolved soon. The coming quarters will make the extent to which the fleet of 737 Max, being grounded, is affecting operations.