Southwest Reports Mixed Q4 Results, 2024 Outlook Remains Optimistic

Southwest Airlines Co LUV reported a fourth-quarter fiscal 2023 operating revenue increase of 10.5% year-over-year to $6.82 billion, beating the consensus of $6.74 billion.

The carrier attributes its revenue performance to healthy leisure demand and continued yield strength, especially during the holiday periods. The company also boasts record fourth-quarter ancillary revenue, loyalty program revenue, and passengers carried.

Adjusted EPS was $0.37, up from $0.38 last year, beating the consensus $0.12.

The airline reported an operating loss of $361 million, compared to a loss of $386 million a year ago.

Q4 RASM decreased 8.9% Y/Y, due to higher-than-expected close-in bookings and continued yield strength

Revenue passenger miles increased 13.7% Y/Y, Available seat miles were up 21.4% Y/Y, and load factor was 78.2% compared to 83.5% in 4Q 2022. CASM-X was down 18.1% Y/Y.

Fuel costs were $3.00 per gallon (-5.7% Y/Y), which included $0.05 per gallon in premium expense and $0.12 per gallon in favorable cash settlements. Fuel efficiency improved by 4% Y/Y due to more Boeing 737-8 (“-8”) aircraft.

The Dallas-based company had a net cash position of $3.5 billion and an adjusted debt-to-invested capital ratio of 45% as of December 31, 2023.

LUV’s liquidity stood at $12.5 billion, more than debt outstanding of $8 billion.

Southwest Airlines’ cash provided by operating activities for the fiscal totaled $3.16 billion, compared to $3.79 billion a year ago.

First-quarter 2024 Guidance: Southwest Sees RASM Up 2.5%-4.5% YoY; ASMs Up ~10%; CASM-X up 6% to 7% and Economic fuel costs per gallon of $2.70-$2.80.

2024 Guidance: Southwest Sees ASMs Up ~6%; CASM-X up 6% to 7%; Economic fuel costs per gallon of $2.55-$2.65.

“Our 2024 plan leverages a set of initiatives which, most importantly, includes better aligning the route network to new demand patterns. While it is early in the first quarter, these initiatives are delivering value and we expect them to contribute roughly $1.5 billion in incremental year-over-year pre-tax profits. As a result, we expect double-digit year-over-year operating revenue growth and year-over-year operating margin expansion,” commented Bob Jordan, President and Chief Executive Officer.

Price Action: LUV shares are trading lower by 2.68% at $30.30 on the last check Thursday.

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