Southwest Airlines' Record Passenger Numbers Overshadowed By Q1 Earnings Slump And Boeing Setbacks

Southwest Airlines Co LUV reported a first-quarter fiscal 2024 operating revenue increase of 10.9% year-over-year to $6.33 billion, missing the consensus of $6.42 billion.

The carrier attributes its revenue performance to strong demand trends and passenger and ancillary revenue, passengers carried and new Rapid Rewards Members.

Adjusted EPS was $(0.36), down from $(0.27) last year, missing the consensus $(0.34).

The airline reported an adjusted operating loss of $(377) million, compared to $(284) million a year ago.

LUV’s first-quarter RASM came in at the low end of its expectations primarily due to lower-than-expected close-in leisure passenger volume, including lower-than-expected maturation of development markets.

Revenue passenger miles increased 12% Y/Y, Available seat miles were up 11% Y/Y, and load factor was 78.3% compared to 77.6% last year. 

CASM-X increases by 5% Y/Y, reflecting favorable airport settlements and higher-than-expected participation in voluntary time off programs.

Fuel costs were $2.92 per gallon (-8.5% Y/Y), which included $0.08 per gallon in premium expenses and $0.04 per gallon in favorable cash settlements. Fuel efficiency improved by 2.5% Y/Y.

The Dallas-based company had a net cash position of $2.5 billion and an adjusted debt-to-invested capital ratio of 47% as of March-end.

LUV’s liquidity stood at $11.5 billion, more than the debt outstanding of $8 billion.

Southwest Airlines’ cash used in operating activities for the quarter stood at $(104) million, compared to cash provided of $706 million a year ago.

“While costs remain a headwind, we are realizing benefits from our ongoing cost reduction actions and remain focused on enhancing productivity and controlling discretionary spending. We also have certainty with labor rates, having ratified agreements with 11 of our labor groups in the past 18 months, including the agreement ratified yesterday for our Flight Attendants,” commented Bob Jordan, President and Chief Executive Officer.

“Achieving our financial goals is an immediate imperative. The recent news from Boeing regarding further aircraft delivery delays presents significant challenges for both 2024 and 2025,” added Jordan.

“And, we are implementing cost control initiatives, including limiting hiring and offering voluntary time off programs. We now expect to end 2024 with approximately 2,000 fewer Employees as compared with the end of 2023.”

The company had made the difficult decision to close its operations at Bellingham International Airport, Cozumel International Airport, Houston’s George Bush Intercontinental Airport, and Syracuse Hancock International Airport. 

Related: Southwest Faces Further Reductions In Expected Boeing Jet Deliveries: Report

Second-quarter 2024 Guidance: Southwest sees RASM down 1.5%-3.5% YoY; ASMs Up ~8%-9%; CASM-X up 6.5% to 7.5% and Economic fuel costs per gallon of $2.70 to $2.80.

2024 Guidance, updated: Southwest sees ASMs Up ~4%; CASM-X up 7% to 8%; Economic fuel costs per gallon of $2.70-$2.80. Capital spending of ~$2.5 billion.

Price Action: LUV shares are trading lower by 9.3% at $26.56 at the last check Thursday.

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