Southwest Profits and Revenues Are Up But Shares Take A Fall

According to industry metrics, Southwest is the No 1 US carrier measured by passenger traffic and the numbers seem to confirm it. Southwest held its full-year guidance and has also forecast another $1 billion in revenue for next year based on several improvements:  aircraft construction/maintenance, onboard technology, and food selection. The air passenger carrier earned $615 million, or $1.08 per share, which actually beat estimates by 2 cents.

With that, revenue rose 5.1 percent–$5.8 billion—which overall brought shares up an impressive 4 percent, to $31.54.  And still, shares have fallen 5 percent.

As impressive as that is, of course, overall shares for the past 12 months are still down 35 percent, mostly on the heels of American struggling to increase their revenue in line with major rivals like Delta Air Lines Inc and United Airlines.  Also, Southwest has advised that fuel costs are expected to increase to nearly $2.40 a gallon next year, which is higher than their per-gallon fuel bill in the third quarter. This is also higher than what the airline had originally thought they would be paying for fuel in Q4.

Still, even when you ignore [higher] fuel costs, operating expenses for Southwest Airlines increased 7 percent in Q3 over the same period last year.  The company also says they expect this increase could continue in Q4, though perhaps only about 1 percent more.

According to Cowen analyst Helane Becker, “Unit revenue guidance has been consistently ahead of expectations these earnings as the industry is seeing good demand and improved yields due in part to strong close-in bookings.”

Trying to stay on track, though, the Fort Worth, TX-based air carrier said it is still targeting a pre-tax margin—which does not include special items—to hit somewhere between 4.5 and 6.5 percent through Q4.  These estimated earnings suggest higher numbers than Wall Street expects.

Also Southwest forecast the closely-watched unit revenue—which compares sales to flight capacity—to increase at least 1.5 percent, also in Q4.

CEO Gary C. Kelly affirmed, “The significant increase in our third quarter 2018 earnings per diluted share was driven by record-third quarter operating revenues, lower federal income taxes, and a 4.8 percent year-over-year reduction in share count. Despite higher jet fuel prices and other cost pressures, we grew our third quarter 2018 net margin, year over year, which is a notable accomplishment.”