Airliner Southwest Airlines (NYSE: LUV) slumped in pre-market trading at the time of writing on Thursday after the company’s adjusted earnings fell in the second quarter to $1.09 per share as compared to $1.30 per share in the same period last year but was in line with Street estimates. The fall in profits was a result of higher fuel costs of $2.60 per gallon in Q2, slightly above the company’s expectations.
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Southwest generated record operating revenues of $7 billion, an increase of 4.6% year-over-year versus consensus estimates of $6.98 billion.
Bob Jordan, President, and CEO commented, “…we continue to expect $1.0 billion to $1.5 billion of pre-tax profit contribution in full year 2023 from strategic initiatives outlined at our Investor Day last December. Based on current revenue and cost trends, we expect record operating revenue and a profitable outlook again for third quarter 2023 and continue to expect year-over-year margin expansion for full year 2023.”
Looking forward, the company expects its operating revenue per available seat mile (RASM) to decline by 3% to 7% with available seat miles (ASMs) likely to be up by 12% in the fiscal third quarter. The company’s management added that while the airline’s revenues are rising “they are still not back to pre-pandemic levels.”
Jordan added, “We estimate these meaningful network optimization efforts and the continued maturation of our development markets will contribute roughly $500 million in incremental year-over-year pre-tax profits in 2024, which we believe will support another year of margin expansion.”
Analysts are cautiously optimistic about LUV stock with a Moderate Buy consensus rating based on five Buys and six Holds.
