Southwest Posts Earnings Beat Despite Boeing Headwinds
- By Sydnee Gatewood
After a rough quarter that included a government shutdown, maintenance issues and thousands of flight cancellations related to the Boeing (BA) 737 Max groundings, Southwest Airlines Co. (LUV) reported stronger-than-expected first-quarter earnings before the opening bell on Thursday.
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The intrinsic value of LUV
The Dallas-based airline posted adjusted earnings of 70 cents per share, topping Refinitiv's estimates of 61 cents. Revenue grew 4.1% from the prior-year quarter to a record $5.15 billion, narrowly beating expectations of $5.12 billion.
Following the announcement, shares rose 2.5% in premarket trading.
In addition to impacts from the government shutdown, maintenance issues and severe weather, the airline said the grounding of the 737 Max, which makes up less than 5% of its daily flights, caused it to lose $200 million in revenue as it was forced to cancel 10,000 flights during the quarter. The jets have been grounded since mid-March after the anti-stall software was found to have been the cause of two fatal crashes in Ethiopia and Indonesia.
In addition, the cancelations and government shutdown affected Southwest's revenue per available seat mile, a closely watched metric of efficiency, by 2 points. Overall, the company said the metric grew 2.7% from the year-ago quarter to 13.59 cents.
Since it is unknown when the jets will be allowed to return to the skies, Chairman and CEO Gary Kelly said in a statement that Southwest has adjusted its flight schedule to exclude the 737 Max through Aug. 5.
"Following a rescission of the Federal Aviation Administration order to ground the Max, we will return the aircraft to service once we are confident that we are in compliance with all necessary FAA directives and all necessary pilot training has been completed," he added. "Safety is our top priority, and that commitment will never be compromised."
Kelly noted that while flight cancelations are "expected to drive unit cost pressure for the duration of the Max groundings," the airline's long-term goals remain unchanged.
He also touched on the launch of Southwest's service to Hawaii, which kicked off in March with an inaugural flight from Oakland, California to Honolulu.
"The warm welcome we received from communities across Hawaii was tremendous," Kelly said. "We are scheduled to begin service from San Jose to Honolulu on May 5, and to Maui on May 26. Our interisland service is scheduled to begin on April 28, with service between Honolulu and Maui, and between Honolulu and Kona on the island of Hawaii on May 12."
Kelly expects the expansion of services to Hawaii to be a key focus in 2019 and 2020.
With a $28.93 billion market cap, shares of Southwest were up 3.02% at $54.53 on Thursday morning. After tumbling 29% in 2018, GuruFocus estimates the stock has climbed 17% year to date.
Disclosure: No positions.
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This article first appeared on GuruFocus.
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The intrinsic value of LUV
