Southwest Airlines Shares Slip Post Q2 Results, Foresees Lower Capacity in FY22, Slashes Boeing Aircraft Deliveries Estimates By 42%

Southwest Airlines Co LUV reported second-quarter FY22 operating revenue growth of 67.9% year-over-year to $6.73 billion, beating the consensus of $6.71 billion.

Adjusted EPS improved to $1.30 compared to $(0.35) in 2Q21, beating the consensus of $1.18.

Operating revenue increased 13.9% compared to 1Q19.

Operating income improved to $1.16 billion (+94.9% Y/Y), and margin expanded by 240 bps to 17.2%.

Operating expenses, excluding Fuel and oil expenses and profit-sharing, were $3.85 million, an increase of 6% compared to 2Q19.

Southwest Airlines' cash provided by operating activities year-to-date totaled $2.78 billion, compared to $2.65 billion a year ago. The company ended Q2 with ~$13.23 billion in cash and equivalents.

RASM increased 22%, driven primarily by a passenger yield increase of 18.4%, coupled with a load factor increase of 0.07 points compared to 1Q19.

Revenue passenger miles increased 17.5% Y/Y, Available seat miles were up 11.7% Y/Y, and load factor was 87.1% compared to 82.9% in 2Q21.

"As anticipated, we experienced inflationary pressures and headwinds from operating at suboptimal productivity levels in the second quarter, which we expect will continue in the second half 2022; however, our fuel hedge continues to provide significant protection against higher jet fuel prices. Barring significant unforeseen events and based on current trends, we expect to be solidly profitable for the remaining two quarters of this year, and for full year 2022," commented CEO Bob Jordan.

Airlines stated that it is experiencing delays in aircraft deliveries from Boeing Co BA and now estimates 2022 deliveries to be 66 versus the previously expected 114, ending the year with 765 aircraft.

Q3 Outlook (compared with 1Q19): Operating revenue to be up 8% - 12%, ASMs to be flat, and CASM-X up 12% to 15%.

FY22 Outlook (compared with FY19): LUV expects Capacity to be down ~4%.

Price Action: LUV shares are trading lower by 6.45% at $38.14 during the premarket session on Thursday.