JetBlue, American Airlines beat on earnings
Yahoo Finance Live anchors discuss airline earnings for JetBlue and American Airlines.
BRAD SMITH: Southwest Airlines ticker symbol LUV reported a wider-than-expected loss for the fourth quarter thanks in part to the massive holiday fiasco resulting in nearly 17,000 flight cancellations. Joining us now to take a deeper dive into Southwest, we've got Yahoo Finance's Pras Subramanian. Pras, what jumps out to you from the report?
PRAS SUBRAMANIAN: Brad, we're seeing the financial damage really done here from that holiday fiasco. Southwest reporting a loss for the quarter like you mentioned, taking an $800 million pre-tax hit from that fiasco. Like you said, 16,700 flights canceled during that 10-day period. And now the DOT is investigating Southwest over where they deceived customers over the amount of flights they could handle during that time. So not looking good there.
But from revenue point of view, not all bad, though. Reported a record revenue for the quarter-- up nearly 8% compared to 2019 levels. So that's pretty good. But again, the big question is, can they actually recover reputationally from what happened last quarter?
BRAD SMITH: All right. "Yahoo Finance's" Pras Subramanian. And Pras, thanks so much for breaking that down. And yeah, it was a $725 million to $825 million range that they had given us going into this report as well. However, given what they pointed out-- and I think at the end of the day, where they're going to continue to make some of those investments in capacity-- that's what investors are really going to be leaning on in terms of the President and CEO Bob Jordan. He said in this quarter-- despite the negative financial impacts due to the Omicron variant fourth quarter '22 due to operational disruptions-- we generated full year 2022 net income.
And that's significant, because a few of the airlines were trying to figure out how they would get back to full year profitability over the course of 2022. And this certainly kind of put that in jeopardy as well, given the final quarter, and given the travel disruptions that they had to account for.
BRIAN SOZZI: Brad, you guys know me. I'm a long-time caller out of just tone-deaf executives. And I just think it's ridiculous. The bottom of this earnings release for this company, they are highlighting 10 to 15 awards they've gotten from various media. (EXASPERATEDLY) Who cares? Who cares about that garbage?
Investors are concerned how you are going to bounce back from having 17,000 flights canceled in December. And I'll hop on the earnings call later, but I didn't get the sense that they're really moving with the sense of urgency that they should be. And I go down to their capex. This year, they're guiding for capex, $4 billion to $4 and a half billion. Last year, Brad, $3.9 billion there spent for a company that is likely going to have to overhaul its technology.
I would have liked to see something close to $5 billion I think that would have sent a very powerful signal that the board executive gets it-- Bob Jordan, of course, the CEO of the company, they get it-- and they're looking to never have this situation happen again.
BRAD SMITH: But the way that they're allocating spending right now, or the way that they've been moving, doesn't signify that they're going to do it quickly. And there's two frames of mind around that. They said within this release as well that the Board of Directors established an operations review committee. Unclear about when they will have some type of result or solution that comes out of that operations review committee, and what type of dollar figure that's going to mean.
Because that's what investors are going to want to hear about. That's what's going to have some type of reaction in Wall Street and how the stock is evaluated. Because quite frankly, given some of the conversations that we've had with analysts around the airline industry, it doesn't matter what the dollar figure is. This has just continued to be a looming cloud over Southwest Airlines. And it could have-- worst-case scenario-- more of a detractor type of event to their net promoter score if customers decide not to fly with, or not to purchase tickets, knowing that their travel plans might be disrupted.
JULIE HYMAN: Meanwhile, the other airlines are doing just fine. If you look at the board today, American reported, JetBlue reported, Alaska reported. And we showed how they're trading in the pre-market before. And all of them seem to beat estimates. So maybe-- Alaska, actually, is trading a little bit down. But Southwest-- while the negative attention is there-- it seems like the others are quietly just operating.
BRIAN SOZZI: Yeah, it was interesting the tone. We, of course, have been talking about recession layoffs. But you had JetBlue coming out here and saying they are seeing solid, quote, "solid demand." American Airlines, which really shocked the heck out of me, saying they are seeing a strong demand environment. And both of those companies coming out with their full year guidance ranges-- at least in the case of JetBlue, almost $0.30 above current consensus estimates. American Airlines, their outlook well above consensus estimates. Nowhere in those outlooks, Brad, that I see two companies prepare for a major economic downturn.
BRAD SMITH: Full year net income of $127 million for American Airlines group. And saying that they're committed to running a reliable operation, returning to profitability here. And again, that just takes us back or reverts us to my previous point about how all of these airlines who are still in the process of restoring capacity to pre-pandemic levels are trying to do so-- and restore capacity at the same time that they're trying to retain that profitability that has been achieved either on a quarter base-- on a consecutive basis for some airlines. Or now finally in 2022, on an annualized base as well.
JULIE HYMAN: Yeah
BRIAN SOZZI: Yeah.
JULIE HYMAN: (LAUGHING) I don't have anything else to add.
BRIAN SOZZI: It's just-- well, outside of this, getting a lot of just different demand signals. We had the airlines come on here. Positive Tesla-- we had Elon Musk talking about a severe recession. That stock is ripping higher. Top ticker on our site. Just a lot of confusing signals. Then, oh yeah, to kick off this week, you have Microsoft saying it's seeing deceleration in so many parts of his business-- notably the cloud. And that stock got hit.
BRAD SMITH: Well, for Microsoft, it's kind of a compounding-- or an intersection-- of a few things. It's cloud spending, and then it's additionally the spending that they're doing to make sure that they're investing in that next wave-- or next leg-- of growth. ChatGPT-- whatever that could be in the near term and long term. It's just a question of how long of an arc investors have the propensity to stomach some of that risk in the spending that they may be doing too.