Southwest Airlines Earnings Preview: Why Southwest Is Likely To Report An Earnings Beat

January 22nd, 2020 by Trefis Team
+22.15%
Upside
29.06
Market
35.50
Trefis
LUV: Southwest Airlines logo
LUV
Southwest Airlines

Southwest Airlines (NYSE: LUV) will release its full-year 2019 results on Thursday, January 23. Trefis details expectations from the airline company in an interactive dashboard, parts of which we highlight below. We believe that Southwest Airlines will report stronger than expected earnings for FY 2019. We expect Southwest to report total revenues of $22.5 billion (vs. consensus estimate of $22.4 billion) primarily driven by the company’s passenger division. Also, earnings are likely to be around $4.55 (vs. consensus estimate of $4.40), growing by 7% (y-o-y) thanks to lower fuel costs. Though the U.S. airline industry faced a capacity shortage in 2019, we estimate Southwest Airlines’ valuation to be $60 a share – roughly 10% above its current price of $55.

Trefis shines the spotlight on key assumptions and data for Southwest Airlines, and our hypothesis lays out one possible set of expectations. You can chime in with your expectations for Southwest Airlines’ FY19 earnings in our interactive dashboard.

 [1] Southwest Airlines’ Revenues expected to be in-line with market expectations

  • The company generates a bulk of its revenues from air ticket sales, which contribute nearly 93% of Passenger revenues.
  • Redemption of certain passenger loyalty rewards and other ancillary services such as baggage fees and on-board sales are also a part of Passenger revenues.
  • In 2018, Passenger revenues observed growth of 4%, primarily due to growing capacity across regions.
  • In the last three quarters, Southwest’s available seat miles have declined by 2%, impacted by the grounding of its 737 MAX fleet.
  • However, we expect growing passenger yield from rising airfares to have expanded the company’s revenues by 2.3% (y-o-y) to $22.5 billion for the full-year 2019.
Relevant Articles
  1. What’s Behind The 15% Fall In Southwest Airlines Stock Earlier This Week?
  2. What’s Next For Southwest Stock After A 20% Rise This Year?
  3. Gaining 20% In 2023 Will Delta Continue To Outperform Southwest Stock?
  4. Will Southwest Airlines Stock Recover To Its Pre-Inflation-Shock Level?
  5. Here’s A Better Pick Over Southwest Airlines Stock
  6. Southwest Airlines Stock Has Shed 30% Since Late 2019: Here’s Why

 [2] EPS expected to increase by 7% from $4.24 in 2018 to $4.55 in 2019, driven by lower fuel costs

  • After falling sharply in December 2018, crude oil prices have remained relatively stable at $60 a barrel in 2019.
  • As fuel expenses are nearly 20% of the operational costs for the company, lower fuel expenses have had a positive impact on the net income margin.
  • We expect the company’s EPS to grow by 7% to $4.55 for the full year 2019.
  • Our valuation for Southwest Airlines’ stock stands at $60 per share, driven by an EPS of $4.55 and a P/E multiple of 13.2

You can input your estimates for Southwest Airlines’ FY19 earnings and see how that affects the company’s stock price in our interactive dashboard.

 

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams