Southwest Airlines Co. (LUV) on Q1 2021 Results - Earnings Call Transcript
Operator: Hello and welcome to the Southwest Airlines First Quarter 2021 Conference Call. My name is Keith and I will be moderating today’s call. This call is being recorded and a replay will be available on southwest.com in the Investor Relations section. After today’s prepared remarks, there will be an opportunity to ask questions. Ryan Martinez: Thank you, Keith and I appreciate everyone joining today. In just a moment, we will share our prepared remarks and then open it up for Q&A. And on today’s call, we have our Chairman of the Board and CEO, Gary Kelly; Chief Operating Officer, Mike Van de Ven; our President, Tom Nealon; and Executive Vice President and CFO, Tammy Romo. We have also have other senior executives with us for Q&A including Andrew Watterson, Executive Vice President and Chief Commercial Officer; and Bob Jordan, Executive Vice President of Corporate Services. So a few quick reminders and then we’ll jump in. We will make forward-looking statements today, those are based on our current expectations of future performance and that our actual results could differ substantially from these expectations. We also had several special items in our fourth quarter -- excuse me in our first quarter results which we excluded from our trends for non-GAAP purposes and we will reference those non-GAAP results in our remarks as well. We have more information on both of these in our press release from this morning. So please make sure you check that out as well as our Investor Relations website. So with that, we’ll get started and I will turn over the call to Gary. Gary Kelly: Thank you, Ryan, and good morning, everybody, and welcome to the first quarter 2021 call. The first quarter results are notable, first of all, because they are a lot better than what we thought they would be back in January. But even with that improvement, we still lost $1 billion and it was worst than our fourth quarter results due to the weaker seasonality of January and February travel. And clearly that’s not sustainable. But fortunately, we’re here to report that we believe the worst is now finally behind us. We have a much better outlook and report for second quarter. And we’ll give you a full brief on the first quarter results and our second quarter outlook. But here are a few topside highlights before I pass the call over to Mike. Number one, thankfully, we received a second round of payroll support or PSP from the federal government and effectively covering the first quarter. It was much needed. We’re very grateful. We’re the only airline who has avoided pay cuts, layoffs, furloughs and the like, and I’m very, very gratified that our 50 year record remains intact on that front. Not counting working capital, changes in cash flow, our cash losses of $1.3 billion were more than offset by the PSP. Number two, beginning with a mid-March inflection point, we finally began to see bookings improve from the nine month down 65% flat line that we had been experiencing. So vaccines, vaccinations, case counts and spring break, all converged in the right way. And sensing this, we boosted our capacity by 50% overnight or 1,000 daily departures in the middle of March. Number three, taking into account our voluntary separation program and attrition since June, our staffing currently is at 92% of our June 2019 levels. And in addition, we’ve had thousands of people on leave. And now that we’re adding flights, we’re smoothly recalling those that are needed on voluntary leaves and having avoided the mess associated with furloughs. And as a result, we plan to apply 96% of our June 2019 ASMs, albeit with a different route network. The point being is that we’re very well prepared to flex up our capacity. And even having said that, I think that we’re very well aware of it, it will still be messy. And we’ll have to carefully manage. Mike Van de Ven: Thanks a lot, Gary. And -- well, we really had an action packed start to the year, and I’m very proud of our people and how they just continue to rise to the occasion. They’ve opened up four new stations in the first quarter and two more in April, implemented a federal mask mandate, returned the MAX to service, secured a new long-term Boeing order book of MAX 7 and the MAX 8 and reached service agreements with GE and CFM International for the LEAP-1B engines and all of that while running an exceptional operation. Tom Nealon: Okay. Thanks, Mike. Good morning, everybody. Well, we provided a pretty detailed investor update each month throughout the quarter, and our earnings release certainly provide a lot of information this morning, so I’m going to try not to repeat what you’ve already heard. But I do want to provide some color regarding first quarter’s revenue performance as well as some perspective on near-term trends and our outlook for the second quarter. So as you know, the first quarter, operating revenues decreased 52% year-over-year or down 60% compared with the first quarter of 2019, and this is better than we were expecting 3 months ago when we last spoke with you during the January call. February operating revenues ended up about 5 points better, in March about 15 points better than our estimates in that same time. And that has really been the story over the past few months. We have seen steady and very encouraging improvements in leisure travel demand and bookings week after week, really since about mid-February. We saw a very nice improvement in March with operating revenues down 10% year-over-year and down 54% compared with March of 2019, which again was better than our guidance range of down 55% to 60%. March load factor was 73%, also better than guidance, and passenger yield was down 34% year-over-year. Yields were down quite a bit for the months -- for the month once we got into March. But once we got into March, rather, fares improved each week as we saw demand steadily increase. Close-in bookings held up well. We also began to see the booking curve extend further out. Keeping in mind that business travel remained fairly stagnant, which I’ll hit on in just a few minutes, I’d say that we were really very pleased with March’s overall performance. We were able to get a very good base of bookings in place for March early in the booking curve, and we did this through very targeted promotions that we ran back in December, January and February time frames. And once we got into March, our revenue management team was able to do a really nice job of managing our inventory close rate of managing yields. And as expected, spring break performed really nicely, very well. It’s bigger than just the spring break story. The entire month of March really saw a steady build in passenger traffic. And just to give some perspective, March’s load factor was 20 points higher than what we experienced in January, and that was actually on higher capacity as well, which I think really highlights the pent-up demand for leisure travel that we’re seeing. And what’s encouraging is that this momentum continues into April and in our last investor update that was in mid-March, we estimated April operating revenues to decline 45% to 55% versus 2019. But since that update, we’ve experienced steady improving passenger volumes and fares. So we’re now estimating April operating revenues to decline in the 40% to 45% range versus 2019, and that’s with a load factor between 75% and 80%. Tammy Romo: Alright. Thank you, Tom, and hello, everyone. I’ll round out today’s comments with a few remarks on our performance and an overview of our cost, fleet, liquidity and cash burn before we move on to Q&A. This morning, we reported first quarter net income of $116 million or $0.19 per diluted share, which included $1.2 billion in payroll support. Excluding this benefit and other special items detailed in this morning’s press release, our first quarter net loss was $1 billion or a $1.72 loss per diluted share. While our losses persisted in first quarter, I feel good about the progress we are making, in particular, as we move through second quarter here. I want to commend our people on another solid cost performance as we have to remain extra diligent with our spending. Excluding special items, our first quarter total operating cost decreased 24% year-over-year to $3.3 billion and increased 17% year-over-year on a unit basis. Fuel represented about 35% of that decrease. Our first quarter economic fuel price of $1.70 per gallon was at the midpoint of our guidance range, and our fuel expense declined 44% year-over-year. Reduced capacity levels resulted in gallon consumption down 37%, the largest driver of our year-over-year decline and economic price per gallon down 11%. We realized a modest hedging gain of approximately $1 million or $0.01 per gallon, and our hedging program premium costs were $25 million or $0.09 per gallon. While fuel price was still below year ago levels, energy prices have been creeping up over the past few quarters, which only serves as a reminder of the importance of having a consistent and meaningful fuel hedging program. We have great hedging protection in place, with hedging gains beginning at Brent prices in the $65 to $70 per barrel range, and more material gains once you get to $80 per barrel and higher. Based on market prices as of April 15, we expect our second quarter fuel price to be in the range of $1.85 to $1.95 per gallon, including another modest hedging gain of $0.01 per gallon. Looking at 2022, we also have a high-quality fuel place -- fuel hedge in place with a similar level of protection. But we would start recognizing hedging gains around the $60 per barrel Brent range with more meaningful hedging gains beginning at $70 per barrel and higher. Last year, we took the opportunity to add our 2022 hedge position while prices were lower. Our first quarter fuel efficiency improved 5% year-over-year, primarily driven by many of our older aircraft remaining parts. Some of the current fuel efficiency gains are temporary as we’ll see some sequential pressure as we return more of our older 737-700 aircraft to service this summer. However, we currently estimate our second quarter fuel efficiency to be sequentially in line with first quarter’s ASMs per gallon, partially due to returning the MAX to service last month. The MAX is our most fuel-efficient aircraft, and we have a line of sight to more significant improvements over many years as we plan to retire a significant amount of our 737-700 aircraft in the next 10 to 15 years. We get at least a 14% fuel efficiency improvement on a per aircraft basis, each time we replace an end-of-life 737-700 aircraft with a new MAX. This will be a big driver of progress towards our long-term environmental goals. Excluding fuel, special items and profit sharing, first quarter operating cost decreased 19% year-over-year on the better end of our guidance range. On a unit basis, the increase was 23% year-over-year, primarily driven by the 35% reduction in capacity. We continue to realize cost savings from our actions taken in response to the pandemic, including $412 million of savings and first quarter salaries, wages and benefits driven by the benefits of our employee voluntary lead programs implemented last year. We had pay rate increases for our people that are flowing through this year, but the voluntary program savings far offset that rate inflation. Outside of salary wages and benefits, we had year-over-year decreases in most other categories due to reduced capacity and the related cost relief, primarily in the areas of maintenance, landing fees and employee customer and revenue-driven costs. In terms of a few other notable items in first quarter, aircraft rental expense was $52 million, down 9% year-over-year, driven by the return of leased 737-700 aircraft. Advertising spend has increased sequentially from fourth quarter as we ramp up the marketing, but our first quarter advertising spend was down 8% year-over-year. And we realized onetime favorable settlements in first quarter, primarily property taxes, and those are reflected in our other operating expenses. Again, our first quarter cost performance was solid, and I appreciate all the work our teams are doing to manage costs in this unprecedented environment. Turning to second quarter, we currently expect operating expenses, excluding fuel and oil expense, special items and profit sharing, to increase in the range of 10% to 15% year-over-year and also to increase sequentially compared with first quarter. We estimate that 60% to 70% of the expected sequential increase is due to variable flight driven expenses as we plan to increase capacity to near 2019 levels by June. To support the increased flight activity, we are recalling a portion of our employees who had elected our voluntary Extended Emergency Time Off program. In terms of salaries, wages and benefits expense. Sequential cost increases from a few items account for about 1/3 of the total sequential increase. We have increases driven by a higher number of active employees in second quarter, including the impact of recalled employees. Roughly half of our recalled employees will return in second quarter and some training will be required for those employees that we recalled as we prepare for them to go back to work. Partially offsetting our second quarter cost pressure from these recalls is an estimated $325 million in cost savings from our voluntary separation and extended leave programs for those employees that took a voluntary separation last year and those employees that remain on extended time off. With some early recalls, we now estimate annual 2021 cost savings from our employee voluntary program to be in the range of $1.1 billion to $1.2 billion, down from our previous estimate of $1.2 billion. Outside of salary wages and benefits, the largest drivers of our sequential cost pressure are flight-driven cost increases and landing fees, employee, customer and revenue-related costs, and maintenance expense as we prepare aircraft that have been parked for a return to revenue service as well as higher flight driven maintenance expenses as flights resume. These ramp-up costs combined represent the other 2/3 of our capacity-driven sequential cost increase. Outside of capacity-driven cost increases, we expect sequential cost pressure driven by airport cost inflation and higher aircraft ownership costs due to the MAX deliveries. And this rounds out the majority of the remaining cost increases. While we are facing expected sequential cost increases that naturally come with increased flight activity, we expect our second quarter operating cost to remain below second quarter 2019 levels. And we expect that our ramp-up cost pressures will vary and persist until we get capacity back to 2019 levels. That said, we remain laser-focused on cost control as we navigate through this recovery. Our first quarter interest expense was $114 million, in line with fourth quarter and assuming our current momentum continues, we don’t currently anticipate raising additional debt. And based on current levels of debt outstanding and current interest rates, we expect second quarter interest expense to be approximately $115 million. Our first quarter effective tax rate was 21%, which was in line with our expectations. And we currently estimate our annual 2021 effective tax rate to be approximately 23%. Mike covered the highlights of our Boeing agreement. I just want to add my thanks to the teams at Southwest Boeing and GE and CFM International for their tireless work to develop agreements that extend and support our long-term relationships and that supports all our Boeing 737 -- our all Boeing 737 business model. Based on the refreshed order book and our retirement plans over the next 10 to 15 years, I feel very comfortable with our ability to manage the size of our fleet, support fleet modernization and pursue growth opportunities as they arise. And we can do this in a cost-effective manner, in particular, with manageable CapEx. We ended first quarter with 730 aircraft, including 61 MAX 8. For second quarter, we expect to receive 7 MAX 8 deliveries and retire 3 737-700s. And we will have 1 more MAX 8 delivery in third quarter and retire up to 6 more -700s by the end of the year. Beyond 2021, we are going to wait a bit longer before we make a decision about 2022 fleet plans and 2022 CapEx. That said, we are well positioned to begin retiring roughly 30 to 35 737-700s a year, beginning next year. Our firm orders should cover a majority of our fleet modernization plan, and we will make decisions on exercising options based on the economic and demand environment and based on growth opportunities and capacity plans. As Mike mentioned, our options provide us tremendous flexibility. As expected, our first quarter capital spending was $95 million, and we currently expect our full year 2021 capital spending to be roughly $500 million, with an immaterial amount of aircraft CapEx and driven mostly by technology, facilities and operational investments. We have plenty of flexibility to manage CapEx with our order book, with aircraft CapEx on firm orders of $700 million next year. Before I wrap up and open the call up for questions, I’ll provide an overview of our liquidity and cash burn. We currently have approximately $14.3 billion in cash and short-term investments, in line with where we ended first quarter. We are thankful to our federal government for providing continued economic relief to protect jobs as the pandemic persists. We received $1.7 billion in payroll support program proceeds during first quarter and expect to receive an additional $259 million as our final distribution of the second round of PSP support or $2 billion total from the PSP extension. We are currently working to finalize our agreement with the Treasury on the third round of PSP support and expect to receive an additional $1.9 billion. Our liquidity position provides a solid foundation as we operate in the wake of 2020 substantial losses and on the heels of another substantial non-GAAP loss in the first quarter. Our first quarter average core cash burn was $13 million per day, a $1 million sequential increase from fourth quarter with rising fuel prices offsetting improving revenue trends. The material improvement in revenue began substantially in March, resulting in an $8 million improvement from our February cash burn of $17 million per day to a March cash burn of $9 million per day. When you include the benefits from future cash bookings and other changes in working capital, as we define for you in our earnings release, we flipped positive in March and produced cash flows of $4 million per day. Assuming the continuation of positive revenue trends, we expect our average core cash burn in second quarter to be in the range of $2 million to $4 million per day. And we continue to expect to achieve cash burn breakeven with roughly -- with revenue of roughly 60% to 70% of 2019 levels. Barring any unforeseen changes in current demand trends, our cost trends and assuming revenue and booking trends continue to build throughout second quarter, we are hopeful that we can achieve core cash breakeven results or better by June. In closing, while the effects of the pandemics persist, our Southwest team continues to conquer both the familiar and unfamiliar challenges of the day. While we aren’t out of the woods yet, we are encouraged by the rise in vaccinations that seem to be unlocking the pent-up leisure demand that we all believed was there. We are optimistic and hopeful that the worst is behind us, but we are mindful that business travel continues to significantly lag leisure. We will continue to manage our business closer in to focus on what we can control, maintaining a strong balance sheet and liquidity position, reducing our cash burn as we work towards breakeven and managing tight cost control and seeking efficiencies, especially as we began to revamp capacity levels. I am immensely proud of how our people continue to persevere and show up for our company, our customers and each other. Working together, I am confident that our best is yet to come. With that, Keith, we are ready to take analyst questions. Operator: . And our first question is with Stephen Trent with Citi. Stephen Trent: Just one quick one for you. Tammy, I was intrigued by what you mentioned about your hedging policy. And you guys also mentioned the approach to climate change with renewable energy credits. Are you thinking about the energy credits and lower emissions, and your fuel hedging policy going forward, are you thinking about them in conjunction with one another is, let’s say, a holistic approach to these topics? Tammy Romo: Yes, absolutely. Well, they’re kind of really two different topics in mind, but we are certainly thinking about them all holistically. Our fuel hedging program, as you know, we’ve had that in place for many years to provide us protection about against rising fuel prices. And looking forward, a component of that will be sustainable aviation fuels. We’re just not at a point today where we’re at significant volumes there with sustainable aviation fuel. So I see that being more relevant with time. But as we look here this year, over the next several years with the hedging position that we have in place, the purpose of that is really to protect against conventional fuel, which is obviously going to be what we’re heavily reliant on. Stephen Trent: Appreciate that. Tom Nealon: Yes. Steve, I think that to get SAF up to where it needs to be, there’s going to have to be some sort of market making going on. And there’s going to be some level of incentive, tax credits for the producers or the blenders or the consumers. So I’m not sure -- I think Tammy and I are both kind of early in exactly what the tax benefits are for all these various ESG-oriented elements we’re going to be investing in. But I think that that’s part of we have to create in order to make SAF really viable and economically viable, if you will, going forward. So, I think it’s kind of an open question, to be honest with you, at this point. Operator: And the next question comes from Hunter Keay with Wolfe Research. Hunter Keay: So, Gary, as you -- Southwest has a long track record of looking out for your shareholders. Obviously, you and others diluted a lot during COVID. So, what do you think is the best way to sort of repay your shareholders? Is it through buying back that stock? Is it through special dividends, or is it really just sort of just taking the money, investing it back in the business and just trying to grow the stock price through earnings? Gary Kelly: I think it’s really a ways away before it’s a real question for us obviously, because we’ve got CARES Act limitations that, Tammy, go, what? Through... Tammy Romo: September of ‘23. Gary Kelly: ‘23? 2023. As you’re well aware. So, it’s opposed that environment. So, I do think we’ve tried to be clear that our priorities would be pay down the debt, number one; and then number two, grow the business. And obviously, we think that that’s the best way to maintain the health of the enterprise, but also the best way to take care of all of our stakeholders, certainly our shareholders. And I’ll let Tammy add if she wants to. I just think it’s premature to telegraph what our thoughts might be ultimately in terms of shareholder returns. I’m not a fan of special dividends. I don’t mind sharing that. So, I also don’t mind sharing that I haven’t had that thought that we would be doing a special dividend, and we couldn’t do it until post September 23rd -- or 2023 anyway. But it’s -- we’ve got four phases, however, that we’re thinking of. One is survival; second is stabilized; third would be repair; and then fourthly would be back to prosperity. So, we’ve sort of declared that until we stop losing money, we’re still in the survival mode. So, that’s a rule out there for what we’re thinking. Once we get to prosperity, I’d love for us to get back to handsome shareholder returns, and I just feel like we need to prepare the balance sheet first. I got the question this morning on CNBC, and I thought it was a good one. We view share repurchases as you well know. We had a healthy dividend going into pandemic, as you well know. We also had the strongest balance sheet and the lowest leverage in our history coming into 2020, and all of that is key in terms of thinking in the future about what we would do with shareholder return. So, we’ve got to get our balance sheet back in order. It’s not broken, but we do have some work to do. And that’s -- I know we’re all aligned here that that’s our top priority. Hunter Keay: Yes. No, I appreciate that color. And just a quick one here for you, Gary as well. I know this is -- seems crazy question, but if demand sort of doesn’t get a whole lot worse, but it doesn’t get a lot better either when we find ourselves looking at PSP 4 maybe attached to the infrastructure bill or something like that. Is that something that you expect to happen or would advocate for, or would actively say we don’t need it? Gary Kelly: Well, not any -- I will admit that’s not anything that I’ve contemplated. I’m very grateful that we’ve gotten not one, not two, but three PSPs. And I guess, to be totally open on the question, we’re -- we feel like we’re on the cusp here of achieving breakeven. It’s hard for me to argue that Southwest would need any further support. Now, the premise that you raised, of course, is that -- if I could sort of extrapolate that it was achieved and we sort of bump along -- with my comments initially, yes, our first quarter turned out better than we thought it would be, but we still lost $1 billion. Well, that can’t go on indefinitely for any company and certainly for an airline. So, I don’t think that that’s what we’re staring down. I don’t think we’re looking at $1 billion loss second, third, fourth quarter. So, given that, I -- which is the only way I can really answer the question. I don’t think we’re in that scenario. So, therefore, no, because this is a live question on this infrastructure bill, and then finally, no, we’re not advocating for anything different other than just trying to provide our input on the spending and the investments that are being contemplated in that bill, along with the prospect of corporate tax increases. So, that’s our focus. Operator: And the next question is from Ravi Shanker with Morgan Stanley. Ravi Shanker: Gary, can you just share a little more detail on what the early conversations with your corporate customers or potential corporate customers have been now that you have widespread GDS integration? Is it different from your existing corporate customers, given that kind of you’re one of the first LCCs to enter the space? Kind of how are those conversions trending? And how is that customer base looking versus what you initially envisioned? Gary Kelly: Yes. The managed travel accounts definitely are behaving differently than our non-managed travel accounts. And I’m going to let Tom and Andrew speak to that. Tom Nealon: I was hoping you would. So, let me just talk about the business travel for just a second. So, the industries that are starting to pop back up again, I consider business demand is falling as opposed to leisure demand, which is hot. But the areas of the business demand that are starting to travel, it’s a lot of government DoD. It is manufacturing, some transportation, the areas that are not traveling are the big consulting firms, which by the way, are the biggest consumers we have of their travel. So, that’s what’s really not happening yet. I think that in terms of the conversations with the large accounts at this point, given that we are now on GDS platforms, we were talking about this before, we’re starting to see the channel shift that we expect to see, given that we’re now on four GDS platforms. And I guess the honest answer is, the volumes are so low, it’s just hard to know if we’re seeing what we would have expected to see in terms of channel shift from one to the other. We are seeing a little bit of a shift -- I think, Andrew jump in, if I’m not correct here, is a little bit of shift from the Sabre BBR, basic product into more of the standard GDS platform. So, that’s working well. But, I guess just in general, the commentary we -- our teams talk with, in fact, they did a great piece with Hunter. I’m not sure if you guys read it. Took a while to read it, it’s pretty long but it was really good. But the conversation was really such that the customer really gets our products. They really want the product. We’ve just been so hard to do business with, et cetera, et cetera. So, I think the conversations with our large corporates are really very, very positive and they just want us to be on the shelf in Sabre and the others, and we will be. So, we have seen a follow business travel, I think. Andrew Watterson: This is Andrew. The only thing I’d add to that is that these TMCs and corporations, we already have relations with them because through our direct connect and our SWABIZ platforms, their customers now just was not their preferred platform. So, I would think about more of expanding our book of business with them, rather than introducing ourselves to these new corporates and TMC. So, the fact we’re moving to something that’s more they’re liking, has received good returns from them. So, that’s why we expect to do better post-pandemic and pre-pandemic with the largest corporations who had more of a standardized process that would go through the GDSs. Operator: And the next question comes from Mike Linenberg with Deutsche Bank. Mike Linenberg: Gary, I -- earlier, I saw a headline out about you making a comment about business travel rebound, not taking place for about 10 years. And I’m just curious the context within that comment. And I don’t know if it was a misquote or maybe there’s some analysis that you guys have done, or maybe it’s your point referencing that maybe some portion of business is never going to come back. Can you just sort of clarify or qualify that statement? Gary Kelly: I’d be happy to, Mike. And honestly, there’s nothing new. I’ve said 10 years for a year. And my only point was it was really in -- and you’re expert at all of this. We’ve just lived through an environment where it is impossible to forecast. It’s impossible to predict. We can all pontificate. And so, all I’ve been saying is really in response, Mike, to a question about will business travel ever recover. And I think it will. I think it’s silly to sit here and say it will never recover. I mean, that’s a bold statement. But, Mike, it could be a long time. And that’s where I’ve thrown out the 10 years, and I’ve done that consistently. You know that a typical recessionary recovery is five years for business travel. And we’ve lived through a lot of recessions together. So that I feel confident of. What I’m not confident about is whether this is a typical recession, number one, and it’s got some pluses compared to a typical. It has the negative because of everything that we know about being able to work now with technology virtually and remotely. And that is a huge question mark. I’m on another Board besides Southwest, talk to other CEOs, talk to all my friends and colleagues here at Southwest, and we get plenty of anecdotal information that suggests that business travel will not recover to pre-pandemic levels anytime soon. So, there’s just no way to know. So, no, I’m not predicting it’s 10 years. Really, what I was trying to do is sort of tamp down the argument that it will never recover and just simply to say that, who knows? It could be a long recovery time period, but we’re going to be prepared, Mike, regardless. And so, Tom and Andrew were just talking about GDS. And for Southwest, I think that we will recover business travel faster because we have a new avenue to gain business travelers. And we dramatically under-indexed the managed travel market. And that was because we weren’t a part of the GDS. We remedied that. We’re the largest airline in the United States. By virtue of that, I would argue that we’re the largest business airline in the United States. And as I said in my remarks, now the managed travel accounts will have wide access to a great network, great service, no bag fees, no change fees and low fares. They will finally have access to low fares. I think, we will do extremely well there. Mike Linenberg: Great. That context was very helpful. Just my second question to Andrew, with the cities, 10 that have been announced, I think, out of 17, interesting, when you think back historically, Southwest was an airline that was very sort of tactical and methodical and sort of additions, maybe one, two a year, maybe some years, no cities. And now all of a sudden, the deluge of cities, and some of these are actually small markets. And if I think back to Southwest in the past, some small markets, the Company historically may have struggled. What -- it sounds like the ramp-up is going fairly well. Andrew, maybe what has changed that you feel much stronger in moving into some of these smaller markets and more quickly? Maybe it’s just the pandemic. You strike when the iron is hot, maybe it’s the density of the Southwest network, small cities can plug in and you can turn on and be successful far easier today than the Southwest of 10 years ago? Maybe I answered the question. But, if you could just give us some color because this is kind of a different mode for Southwest with respect to new city development. Andrew Watterson: Certainly, I’ll be happy to answer, and Tom, feel free to join in. We are methodical. And so, prior to the pandemic, we have a practice every year of going through and looking at every place we could fly our aircraft and evaluating them at least in desktop, if not in-person visit. So, all these cities were ones that were known to us and evaluated prior to the pandemic. And so, when the pandemic, as Gary talked about, we’re unsure about the pace of business travel return. And so, because we have a lot of business travelers, if they were not to return in a timely manner, we would have a shortfall in revenue activity to deploy our people and assets against, and with the operating leverage model, you don’t want that. So, we want to make sure we have enough new cities to cover any potential shortfall in that return. So, that led us to go at a bigger scale than normal. The cities we chose, we chose also to have a low-risk as far as our maturation. And we’ve been in plenty of small cities for a long time. So, our Western Texas cities and Pac Northwest cities, they’re modest, and we do quite well, Upstate New York. And the key is the small city that is relevant to a place where we have a large customer base. And so, if you look at all these small cities, they’re either in marquee destinations under themselves or they’re relevant to a nearby large Southwest city, where we have a large customer base who would be big purchasers of tickets to these small cities. And so, that’s what’s important to us. And then we want to make sure we go in with at least a level of flight activity that allows for crew efficiencies so that we have origination and terminators that make us not to have crude deadhead that would undermine inefficiency. So, all those things must come together for us to add those new cities. So, I think we’re prepared and it fits with our model, I think, is the answer. Gary Kelly: Hey Mike. And I just want to pile on very quickly. If we kind of reconcile to 1992 when you work on our secondary offering in those states, if you remember our rule of thumb, but it’s -- we didn’t want to go into a city in the early 1990s, unless we thought we could do, let’s say, 8 departures a day. And so, I wouldn’t translate what we’re doing with these 17 cities as being a violation of even that old rule of thumb, because some of these "small cities," I think, Andrew -- I won’t name names because we may not want to telegraph yet, but there are a handful that I can think of that you might think are small. We’re thinking there are going to be a dozen or more daily departures, into a number of nonstop destinations. So, if you think, the fact that we now have such a large U.S. presence, it makes a lot of these “smaller markets” much more viable today in terms of flight activity than it did 30 years ago. But, the other thing I would point out is that Miami isn’t small. Bush isn’t small. Colorado Springs isn’t small. O’Haire is not small. So, we do have a few cities that have three or four daily departures on the route map. And I would -- Mike would call those small. And we have experience with them, and we know that they can work. I don’t think that that means that every city like that would work. But, anyway, it’s -- we have been delighted that we could actually have the capacity to put them on the route network here. I got asked earlier today about whether we’ll continue this. And I think Andrew is going to need -- assuming that we continue on our recovery path, he’s going to need to take a lot of these airplanes and put them back into restoring flight activity into our existing network. So, that will challenge our ability to continue doing this play, but they’re permanent adds, and we’re delighted with the performance that we’re seeing. Tom Nealon: I think, at least just to give a little more -- this is one question, so we’ll move on quickly. So, we’ve got about 45 aircraft or so, Andrew, I think, committed to the new states so far, about 8% of the trips. But as I talk about the business demand thawing, as it begins to thaw, we’re going to need to begin to get our network back in business travel shape. And just to give you a little view, I guess people are asking -- ask us, so what does the -- so when does the network get back to normal? Well, the network is not going to get back to what it was because we had 17 new cities on the network. But, what I can tell you is, when you think about the principles in the characteristics of the Southwest network, those will be intact. Point-to-point, you should expect to see a very similar mix of short, medium, long, a similar mix of direct and connecting traffic. And our focus, once we begin to see business on unthaw is we got to begin to put the depth back into the markets like the St. Louis and Milwaukee’s and intra-Cal business markets and such. So, it’s going to be an interesting. But that’s also why we’re getting more aircraft. So, we’re going to retire some, going to have some incrementals. So, it’s going to take time, which is fine because business traffic is not going to show up on one Sunday and all of a sudden it’s back. It’s going to take time, and we’ll begin to build our fleet back in our network depth back. You spurred a lively topic their Linenberg. So, thank you. Mike Linenberg: Yes. I appreciate everyone. I appreciate the responses, and especially the early ‘90s reference, Gary. I remember carrying everyone’s bag. So, it was a fun time. Gary Kelly: The thing that really pisses me off about you, you don’t look any different. Mike Linenberg: You can’t see me. Operator: And the next question comes from Brandon Oglenski with Barclays. Brandon Oglenski: Gary, you did mention four phases here, survival, stabilize, prepare, grow, I think it’s the way you laid it out. It sounds like you’re going to go through stabilize and prepare pretty fast here just with your June capacity outlook. So, I guess, I just have one question, because I know it’s been a long call, but investors are wondering how are you going to take advantage of your net debt position, especially relative to some of your larger competitors that have other capital priorities in front of them. Is the view here that potentially you’re going to grow into a marketplace, potentially take share? Could that sustain lower fares in the future, or should we be thinking, what -- we really want to get back to prior profitability before we push a lot of these fleet and network expansion opportunities that you guys just discussed? Gary Kelly: I think, we want to keep all options available, and we’ve got a great balance sheet as it stands today. We will absolutely have to get back to profitability regardless. We’ve got to get back to profitability. And I already conceded the balance sheet repair will be an objective. Tammy is already rethinking liquidity targets as well that will be more robust perhaps than what we had before. So, there are several things that we’ll want to think through. But clearly, we’re in a position where we have that option. We can pay down more debt more quickly or we can think about expanding more rapidly as compared to some baseline. And it’s just too early to judge that yet. But, we have tons of opportunities. We’re a growth company. We know how to manage growth, and we would be foolish to pass on what I think is the opportunity of a lifetime to grow this airline in this environment. We are so well positioned. If, in fact, the business travel stays modest over the next 5 to 10 years, we are perfectly positioned to prosper in that environment with our low cost and our low fares. Operator: And the last question in this session comes from Jamie Baker with JP Morgan. Jamie Baker: Hey everybody. I got to tell you, I really like Mike’s question. I remember being in Telluride with them about 20 years ago embedding on the one market that you might open that year. And I’m sure the idea of mantras never crossed either of our youthful minds. But, it’s a good segue into my question. Is there a reservation or IT issue that prevents you from flying to Canada? Gary Kelly: Tom, do you want to talk about that? Tom Nealon: Yes, there is. So, to make Canada work for us, that’s both the business and leisure market, we’ve got to be able to sell. Again, it’s back to the whole foreign currency for point of sale that we’ve been talking about for a long time. That’s the thing we need to get done. And Jamie, it’s not like it’s uncomparable technical capacity we don’t know how to do. It’s just a question that we keep putting GDS. And GDS, we have these other priorities kind of popping up, we had the ETOPS. So, it’s not that we don’t know how to do it. It’s just that it keeps getting knocked down the list in terms of priority. But, it’s just a piece of work around the foreign currency and foreign language that we keep talking about that we just keep de-prioritizing because there’s a bigger idea. But it’s really as simple as that. But we think there’s probably 5, 6, 7 really nice markets, which, by the way, is part of the reason Bellingham is now in the schedule, right? So, there’s some nice Canadian markets that can really do very well on the Southwest network. It’s just going to take us -- just got to get a little more time to get that on top of the list I think really. Gary Kelly: I totally agree with everything Tom said, but I would just reemphasize our previous conversation to his question, which is, okay, we’ve added these 17 destinations. We got a lot more we’d like to add. I don’t know that we would have airplanes. Even if we tackle that technology challenge, I don’t know that we would have airplanes to be able to add those new markets. So, I guess, the point is, Jamie, I don’t consider it to be an IT obstacle for Southwest at all. It’s whenever we’re ready, we’ll commit to that. We’ll get the work done. We’ll add it to our route network. Right now, we got all we can eat with the current capabilities we have. Jamie Baker: Got it. And a follow-up to an earlier point, you mentioned that consultants are still pretty much grounded. Pre-COVID, can you remind me what your top three businesses were that make up corporate revenue, and what percentage of your corporate spend, they represented? Top 3 or 4. Gary Kelly: Specific companies or industries? Jamie Baker: I doubt you’re going to give me the companies. Industries… Gary Kelly: I can’t remind you, because I never told you. But, I’ll see what Tammy and Tom have to say. Tom Nealon: I think I’m -- and you probably know which is now more. But certainly, defense is a big deal. It’s not a industry, but DoD is a big traveler for us. Certainly, financial services, banking is big. It’s certainly professional services consulting. In fact, if you look at the BTN 100, that’s every major Tier 1, Tier 2 consulting firm is in there. They are big. Transportation, manufacturing. So, the list goes on and on. Higher ed actually. The state of California, higher ed is a pretty big deal. So, there’s a long list, I guess, is the point. There’s a lot of money tied up in it as well, so. Andrew Watterson: I think what’s more important is it’s not 80-20. Our largest ones make up a very, very small percentage of our corporate book of business. Our corporate book of business is a long list that each one can -- we appreciate them all, but it’s a modest number compared to our overall revenue line item. Ryan Martinez: Okay. Well, that wraps up the analyst portion of our call today. And as always, if you have any follow-up questions, give me a call at 214-792-4415. Thank you all for joining us. And Keith I’ll send it back to you. Operator: Yes. Thank you. Ladies and gentlemen, we will now begin with our media portion of today’s call. I’d like to first introduce Ms. Linda Rutherford, Senior Vice President and Chief Communications Officer. Linda Rutherford: Thank you, Keith. And I’d like to welcome the representatives of the media to our call today. We can go ahead and get started. So Keith, if you would give them the instructions on how to queue up for questions. Operator: Yes. And the first question comes from Dawn Gilbertson with USA Today. I’m sorry. The question is with Alison Sider of the Wall Street Journal. Alison Sider: Thank you. Hi. Yes. I wanted to ask about the latest issues with the MAX. Just curious how you’re thinking about this? How you -- if it affects your ability to build the confidence in the plane, given that there was a lot of betting and new issue just cropped up? Mike Van de Ven: Yes. Hey Dawn. This is this is Mike. And the issue with the airplane was it was specific tail numbers that were identified by Boeing as part of a production run. And they made certain changes in that production run and may have caused some electrical ground and bonding issues in a couple of different components. And the risk there really is -- was just inconsistent electric occurrence to those systems. I think that we haven’t had -- we had had no issues or any identification of that being an issue with our own operating experience of the airplane. And I think the issue is well understood by Boeing. It’s well understood by our engineers. And I think it’s a relatively straightforward repair on the airplane. And as soon as the FAA comes out and approves Boeing service bulletins, we’re ready to execute that repair. And I think, like I said, it’s just a one or two-day repair on the airplanes, and it’s relatively straightforward. Alison Sider: Got it. And I’m curious, is there any -- when you found out about the issue a couple of weeks ago, what was the reaction? Was there any frustration to be kind of in this position again so soon after bringing the plane back? Mike Van de Ven: Well, yes, I mean, I think it’s frustrating to have to go through that process again. I don’t know if lucky is the right word to it, but we had a -- we had plenty of spare airplanes where the -- in terms of an operational issue, it was not a concern for us. But overall, Dawn, I think Boeing is a good company. I think they’ve clearly suffered over the last several years, maybe with various quality issues across some of their product lines. But at heart, they’re an engineering company, and I feel like they need to be leaders in the aerospace and the commercial businesses for our country. And I think they understand that, and I think they’re going to get back to their roots. And I have a lot of confidence that the MAX airplane is going to lead the way there. Operator: And the next question comes from Dawn Gilbertson with USA Today. Dawn Gilbertson: I have two questions. First question is for Tom. Have you guys seen any impact from the State Department’s alert level that they raised, as you get back when the CDC started the testing requirement, or is it too early? What are you seeing there, if anything? Tom Nealon: Could go ahead and just elaborate a little bit on what you’re talking about, not really familiar with what you’re saying, Dawn. Dawn Gilbertson: This week, the State Department has been raising the alert level for international countries, including such popular places as Mexico to better align with the CDC rankings. So, now more than 80% of countries including, like I said, some popular destinations have a higher alert level. And I know sometimes bookings take a hit when that happened. I wondered if you see any impact at all or expected? Gary Kelly: I know what you’re talking about now because where my kids booked. Tom Nealon: So, the answer is, no, I don’t think we’re really seeing much of an impact on that at all at this point. What’s your second question? Dawn Gilbertson: The second question, I’m not sure how it’s far. When you guys were recalling flight attendants recently, one of the things you cited in one of the memos was increase in people calling in sick. I’m curious why you’re seeing an increase in people calling in sick? Are you seeing an increase in infections as -- COVID infection as travel has rebounded, or are there reluctant, some flight attendants to return? Can someone talk about that a little bit? Thank you. Mike Van de Ven: Yes. I’ll jump in there with that and then anybody else can add a little bit of color. But, our labor contracts have a very -- we’re very flexible for our people in terms of their sick banks and how they use sick. And it could be a variety of things. It could be family issues that they’re dealing with. It could be daycare issues that they’re dealing with. It could be illnesses of their selves; it can be doctors’ appointments. And as we’re recalling people and they’re coming back into work, I would argue that they don’t have -- they don’t have all of their personal lives all laid out as neatly as they normally would. And so, I think we will see a spike in that as people are coming back to work. But, I don’t think that it’s in the indication of a long-term trend or a big operational hiccup for us. We have reserves that will cover those lines. And we’re navigating through that pretty well. Operator: And the next question comes from Kyle Arnold with the Dallas Morning News. Kyle Arnold: What are you seeing in the airfare environment? And are you going to be able to hit some of your financial goals with the leisure travelers still -- the leisure travel is very fickle in terms of airfares still leading the way? Tom Nealon: Well, I guess, I’ll start, and Andrew, feel free jump in. But, like I described earlier in the call is, I think the leisure side is pretty hot right now. I think the business demand side is starting to thaw. But I literally have right in front of me what our -- what the booking curve and the fair curve looks like for the upcoming months. And they’re pretty solid, and they’re really encouraging. So, barring a trend change, I feel pretty good about where we are, and it’s kind of back to what we said in the call. Barring a trend change, we feel good about the opportunity to break even, perhaps you can make a little bit of a profit sometime in June or beyond. So, I think that’s kind of how I’d answer at this point. Now, as the booking curve begins to get more extended out further out, it just gives us a lot more flexibility in terms of how we manage the inventories and the fares, and it’s starting to take a normal booking distribution shape, if you will. The level is too low, but the shape is normal. So, we’re able to manage our pricing more effectively, and that’s kind of where we are. So, we feel good barring a trend change. Andrew Watterson: The guidance that Tammy and Tom gave you includes the -- what we saw in the spring of the leisure fares getting stronger from the bottom of the winter wave through towards the summer. However, the lack of business travel that Gary and Tom talked about maybe some of the higher fares that they pay will be absent. So you can -- our fares overall will still be down year-over -- two years and year-over-year as a result of that. Gary Kelly: So, Kyle, this is just talking about -- our peers on average were down 20% in the first quarter. So, this is -- we’re not -- we never give information about what we’re going to charge. So, that’s -- they’re not speaking to that. We’re just talking about how the array of fares that we have average out with the demand that we have. But, I would just say this. The industry has more seats than it does passengers. And Economics 101 tells you that pricing will settle that but at a softer level. So, we were down 20% this quarter. And what we’ll be prepared for is a very low fare environment for a long time, which gets back into the discussion that we’ve been having all day about business travel demand. And that is our wheelhouse. We are low cost. We are low fare. And we can live on low fares. And we’ll certainly make sure that we manage our business accordingly. Operator: And the next question comes from Leslie Joseph with CNBC. Q - Leslie Joseph: Two quick things. On the MAX, are you getting any compensation from Boeing, either in the form of payment or discount on other planes? And, do you have any sense of how much not having those planes and services costing Southwest? And then, my second question, if you want, I could wait till after. Tammy Romo: Yes. This is Tammy. In terms of the pricing on our aircraft with Boeing, that is confidential. We have shared with you that the CapEx that we have with regard to our firm order book for next year is about $700 million, and that is for 30 aircraft. But, it’s just not that simple. There’s a lot going into that. And as you’ve alluded, that incorporates discounts from previous settlements that we’ve had with MAX, with Boeing on the MAX grounding, as well as the terms of our most recent agreement. But, the actual trends itself are confidential. Mike Van de Ven: Yes. And are you talking more specifically to this most recent grounding? Q - Leslie Joseph: Yes, the electrical issue. You get -- and is there -- do you know what the financial impact is… Mike Van de Ven: Yes. We’ve got our arms around what we think that impact is. I will tell you just in the scope of our operation, it’s not material. But, there are new airplanes. The airplanes are warrantied by Boeing. And I think that we have -- I don’t think that will be a concern for us at all. Q - Leslie Joseph: Okay. And then, my other question is, what are your staffing needs for this year? And then, going into next year, do you expect to hire? And do you think that too many employees might have left the Company permanently? Because I know some employees who run temporarily were getting called back early. Gary Kelly: Well, I think I can maybe start with this, and I’ll maybe add some of my friends around the table talk. But, the real question is, we’re looking for the commercial side of the business to be able to go since the demand out there, and we’re looking out five and six months, and then be able to lay out a schedule that responds to that demand. And I feel like we have a lot of flexibility on the airplane side and on the staffing side with plenty of notices to be able to go fund that. So, just to be honest, we can do any of the things. If demand falls off from here, we’re in a good position. If demand stays flat, we’re in a good position. If it increases, we have ability to recall people on EXTO. And if it really explodes, we have the ability to go hire people. And so, it’s just -- it’s tricky. And we’re trying to make those decisions as close in as possible. So, we haven’t really thought about the second half of the year yet. Mike Van de Ven: I’ll just summarize some comments that I made at the outset of our analyst call, which is, we are currently at about 92% of our pre-pandemic staffing. And of course, you pick a point in time and you can judge that number around. But that just gives you some sense. And what Tom was talking about was flying our June schedule at 96% of what we were pre-pandemic for June. We’ve had a little bit of attrition. We’ve had a voluntary separation program. And that’s what gets us down from 100% down to this 92% level. So, we are comfortable -- we’re overstaffed right now in March, April. Projecting forward to June, we would be right at the proper staffing, if not a little bit short. So, there’s pluses and minuses. One department might be a little over; one department might be a little under. But, I think beyond -- to Mike’s point, beyond June, I think what we’re all anxious to see is, well, what do things look like when we get to June. Are we going to hit our forecast as we’ve anticipated it with the bookings for July, August, September, look as good as we hoped? Is there pent-up demand that is not sustained beyond that? I mean there’s just a number of good questions that can be posed at this point. So, it’s just a little bit premature. But, if we get to the point where we’ve got some staffing challenges, I think everybody here would consider that to be a really high-quality problem. But, Bob Jordan is here with us, and Bob heads up our Corporate Services, which includes HR. So, In terms of our current hiring, our current hiring plans, you might just share whatever you’re willing to share there. Bob Jordan: Yes. You bet. And on the recalls, so we -- gratefully we had about 11,000 folks take the EXTO and just a terrific response for our employees. And we’ve recalled just south of half of that to meet the demand that everybody’s talked about here for the summer. And if you -- yes, if you see more demand, we can be in a position to continue the recall. We have begun to ramp back up our hiring ability. So, before you can hire, you’ve got to have people that went off and did their jobs come back and sort of rebuild that team. So, we are ready to hire. That’s very modest right now. It’s key positions. But, I think if we see the demand continue, we are in a position to ramp that back up quickly. Gary Kelly: I do think -- again, to be straightforward about this, I think, we’re all prepared for this to be messy. It’s just not easy to predict, and then it’s not easy to execute. And we also don’t want to end up with excess staffing. So, it’s just trying to strike the right balance here. It was really messy a year ago trying to downsize the airline. And I think, we’re all just going to have to recognize it will be -- I think, we need to be up to the task here and manage well, but just recognize it may be messy. Now, having said that, our operation went up 50% in terms of flight activity overnight back in March and had a flawless execution and outstanding performance. So, we’ve got a basis, I think, for our confidence going forward. But, we’ve been a hiring machine for 50 years. And I feel like we’ll do well when we’re ready to turn that back on. But, I’ll look forward to that. I think that will be a high-quality problem. Operator: And the next question comes from Rick Velotta with Las Vegas Review-Journal. Rick Velotta: I hope this is a little bit of a lighter topic than some of the heavy things you’ve been discussing. Does the company have any opinion on the city of Chicago’s plan to enable the installation of slot machines at Midway and O’Hare International Airport? And as a follow-up, does the Company have any position on legislative proposals to open Texas to legalize gambling within casino resorts in Dallas, Houston, San Antonio and Austin? Gary Kelly: Hey Rick, it’s great to hear your name and hear your voice. And I understand where you’re coming from. I would say, for Chicago -- and I’m looking at our real estate guy here, I would say anything that lowers our operating costs at an airport, we would be all for it. I think, Las Vegas has led the way with some really innovative techniques out there, so. And beyond that, I don’t know that I’ll comment on what’s going on in the state of Texas right now. But, I guess, by extension, anything that generates more travel, I bet everybody in this room would be all for it. So, good to hear from you, Rick. Operator: And we have time for one more question, and that comes from Jay Singh with Simple Flying. Jay Singh: I just want to go back a little bit to your MAX comments earlier. So, it seems like you have an appetite for expansion, and you got an order book out until 2031. What’s the argument against taking maybe a MAX 9 or MAX 10 and freeing up some smaller jets for expansion when you’ve got a pretty significant backlog with a lot of flexibility? Thank you. Tom Nealon: Well, I think the downside for us taking a MAX 9 or 10 is it doesn’t fit our network. We have seen -- our network is built around point-to-point. We don’t want to have too many connections and you start getting to a 9 or 10, you’re quickly into 200 passenger aircraft, that’s just too big part of network the way we run our business. Gary Kelly: Yes. I think, we’d rather see Boeing. If that’s our challenge, we like the 8. We like the 7 as well as we like the 8. We’re -- we don’t -- we’re not certain what mix of those model numbers will have in the future. But, just as a rule of thumb, call it, 50-50, 60-40, who cares. But if that is the issue, I think we’d be pressing Boeing to increase their production rates. And again, that would be a high-quality problem. Operator: And this concludes our question-and-answer session. I would like to return the conference back over to Ms. Rutherford for any closing remarks. Linda Rutherford: Thank you all for joining us today. And if you have any other questions, our communications team is standing by, 214-792-4847 of course, through our media website, www.swamedia.com. Thank you. Operator: Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.LUV Ratings Summary
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Southwest Airlines (NYSE:LUV) Maintains Strong Position Amidst Air-Travel Demand
- Evercore ISI maintains an "Outperform" rating for Southwest Airlines (NYSE:LUV), raising the price target from $35 to $38.
- The airline is experiencing strong air-travel demand and is modernizing its fleet to improve efficiency and reduce costs.
- Southwest Airlines is engaging in shareholder-friendly initiatives, despite a recent stock price decrease, indicating a promising outlook.
Southwest Airlines (NYSE:LUV) is a major American airline known for its low-cost fares and extensive domestic network. The company operates a point-to-point service model, which helps keep costs low and efficiency high. Southwest competes with other major airlines like Delta and American Airlines. On January 8, 2025, Evercore ISI maintained its "Outperform" rating for LUV, with the stock priced at $32.88. They also raised the price target from $35 to $38.
Southwest Airlines is currently experiencing strong air-travel demand, which is a positive sign for its performance. This demand can lead to increased revenue as more passengers choose to fly with Southwest. The airline is also modernizing its fleet, which can improve operational efficiency and reduce costs. This modernization effort is crucial for maintaining competitiveness in the airline industry.
The company is also engaging in shareholder-friendly initiatives, which may include dividend payments or share buybacks. These actions can boost investor confidence and make the stock more attractive. Despite a recent decrease of 1.82% in the stock price to $32.28, these initiatives suggest a promising outlook for Southwest Airlines.
The stock price of LUV has shown some volatility, with a range of $32.16 to $32.68 during the trading day. Over the past year, the stock has reached a high of $36.12 and a low of $23.58. This fluctuation reflects the dynamic nature of the airline industry and the various factors influencing stock prices.
Southwest Airlines has a market capitalization of approximately $19.36 billion, indicating its significant presence in the market. With a trading volume of 616,349 shares on the NYSE, the stock remains actively traded. These metrics highlight the company's strong position and potential for growth in the airline sector.
Southwest Airlines (NYSE:LUV) Maintains Strong Position Amidst Air-Travel Demand
- Evercore ISI maintains an "Outperform" rating for Southwest Airlines (NYSE:LUV), raising the price target from $35 to $38.
- The airline is experiencing strong air-travel demand and is modernizing its fleet to improve efficiency and reduce costs.
- Southwest Airlines is engaging in shareholder-friendly initiatives, despite a recent stock price decrease, indicating a promising outlook.
Southwest Airlines (NYSE:LUV) is a major American airline known for its low-cost fares and extensive domestic network. The company operates a point-to-point service model, which helps keep costs low and efficiency high. Southwest competes with other major airlines like Delta and American Airlines. On January 8, 2025, Evercore ISI maintained its "Outperform" rating for LUV, with the stock priced at $32.88. They also raised the price target from $35 to $38.
Southwest Airlines is currently experiencing strong air-travel demand, which is a positive sign for its performance. This demand can lead to increased revenue as more passengers choose to fly with Southwest. The airline is also modernizing its fleet, which can improve operational efficiency and reduce costs. This modernization effort is crucial for maintaining competitiveness in the airline industry.
The company is also engaging in shareholder-friendly initiatives, which may include dividend payments or share buybacks. These actions can boost investor confidence and make the stock more attractive. Despite a recent decrease of 1.82% in the stock price to $32.28, these initiatives suggest a promising outlook for Southwest Airlines.
The stock price of LUV has shown some volatility, with a range of $32.16 to $32.68 during the trading day. Over the past year, the stock has reached a high of $36.12 and a low of $23.58. This fluctuation reflects the dynamic nature of the airline industry and the various factors influencing stock prices.
Southwest Airlines has a market capitalization of approximately $19.36 billion, indicating its significant presence in the market. With a trading volume of 616,349 shares on the NYSE, the stock remains actively traded. These metrics highlight the company's strong position and potential for growth in the airline sector.
Southwest Airlines Co. (NYSE: LUV) Surpasses Earnings Expectations
- Earnings per share of $0.1058, surpassing the estimated $0.05.
- Record third-quarter operating revenues of $6.9 billion, beating expectations.
- Initiated a $250 million accelerated share repurchase program, indicating a commitment to returning value to shareholders.
Southwest Airlines Co. (NYSE: LUV) is a major American airline known for its low-cost fares and extensive domestic network. The company competes with other major airlines like Delta, American, and United. On October 24, 2024, Southwest reported earnings per share of $0.1058, surpassing the estimated $0.05. The company also reported actual revenue of $6.87 billion, exceeding the estimated $6.73 billion.
Southwest's financial performance in the third quarter of 2024 was notable, with a net income of $67 million, or $0.11 per diluted share. Excluding special items, net income was $89 million, or $0.15 per diluted share. The company achieved record third-quarter operating revenues of $6.9 billion, as highlighted by Market Watch. This revenue beat expectations by a wide margin, contributing to a rally in Southwest's stock.
The airline's strategic agreement with activist investor Elliott to appoint new board members is expected to influence its future direction and governance. This move, along with the positive financial results, has bolstered investor confidence. Southwest has also initiated a $250 million accelerated share repurchase program, part of a larger $2.5 billion authorization, further indicating its commitment to returning value to shareholders.
Despite these positive developments, Southwest faces challenges. The company has a negative price-to-earnings (P/E) ratio of approximately -382.84, indicating current losses. The price-to-sales ratio is 0.67, suggesting investors pay $0.67 for every dollar of sales. The enterprise value to sales ratio is 0.69, slightly higher, reflecting total valuation including debt.
Southwest's liquidity position remains strong, with $10.4 billion in liquidity, significantly exceeding its $8 billion debt. However, the current ratio of 0.88 indicates potential challenges in covering short-term liabilities with short-term assets. The debt-to-equity ratio of 0.87 suggests a moderate level of debt relative to equity, which the company must manage carefully.
Southwest Airlines Co. (NYSE: LUV) Surpasses Earnings Expectations
- Earnings per share of $0.1058, surpassing the estimated $0.05.
- Record third-quarter operating revenues of $6.9 billion, beating expectations.
- Initiated a $250 million accelerated share repurchase program, indicating a commitment to returning value to shareholders.
Southwest Airlines Co. (NYSE: LUV) is a major American airline known for its low-cost fares and extensive domestic network. The company competes with other major airlines like Delta, American, and United. On October 24, 2024, Southwest reported earnings per share of $0.1058, surpassing the estimated $0.05. The company also reported actual revenue of $6.87 billion, exceeding the estimated $6.73 billion.
Southwest's financial performance in the third quarter of 2024 was notable, with a net income of $67 million, or $0.11 per diluted share. Excluding special items, net income was $89 million, or $0.15 per diluted share. The company achieved record third-quarter operating revenues of $6.9 billion, as highlighted by Market Watch. This revenue beat expectations by a wide margin, contributing to a rally in Southwest's stock.
The airline's strategic agreement with activist investor Elliott to appoint new board members is expected to influence its future direction and governance. This move, along with the positive financial results, has bolstered investor confidence. Southwest has also initiated a $250 million accelerated share repurchase program, part of a larger $2.5 billion authorization, further indicating its commitment to returning value to shareholders.
Despite these positive developments, Southwest faces challenges. The company has a negative price-to-earnings (P/E) ratio of approximately -382.84, indicating current losses. The price-to-sales ratio is 0.67, suggesting investors pay $0.67 for every dollar of sales. The enterprise value to sales ratio is 0.69, slightly higher, reflecting total valuation including debt.
Southwest's liquidity position remains strong, with $10.4 billion in liquidity, significantly exceeding its $8 billion debt. However, the current ratio of 0.88 indicates potential challenges in covering short-term liabilities with short-term assets. The debt-to-equity ratio of 0.87 suggests a moderate level of debt relative to equity, which the company must manage carefully.
Deutsche Bank Raises Price Target for Southwest Airlines Co.
- Deutsche Bank analyst Michael Linenberg has increased the price target for Southwest Airlines Co. to $32, indicating a potential upside of 18.78%.
- Rakesh Gangwal, co-founder of InterGlobe Aviation, has joined the Board of Directors at Southwest Airlines, bringing valuable industry experience.
- Despite recent market volatility, strategic leadership additions and positive financial outlooks suggest potential for growth and stability for Southwest Airlines.
Deutsche Bank analyst Michael Linenberg recently adjusted the price target for Southwest Airlines Co. (NYSE:LUV) to $32, up from its current trading price of $26.94. This new target suggests a potential upside of 18.78% for the airline's stock. Southwest Airlines, a major player in the aviation industry, is known for its low-cost carrier model and extensive domestic network. The adjustment in the price target by Deutsche Bank reflects a significant development in the financial outlook for Southwest, as highlighted by The Fly.
The announcement of Rakesh Gangwal joining the Board of Directors at Southwest Airlines marks a pivotal moment for the company. Gangwal's extensive experience in the airline industry, particularly as the co-founder of InterGlobe Aviation, the parent company of IndiGo, India's leading airline, brings a wealth of knowledge and strategic insight to Southwest. This move, announced on July 8, 2024, the day after Gangwal's appointment, underscores Southwest's commitment to strengthening its leadership and strategic direction amidst a challenging aviation market.
Southwest Airlines' stock performance has been under scrutiny, with a recent closing price of $26.94, reflecting a 5.74% decrease. This downturn in stock price, coupled with the fluctuation between $26.94 and $28.55 during the trading day, indicates market volatility that Southwest faces. Despite these challenges, the appointment of a seasoned industry veteran like Gangwal to the board is a strategic effort to leverage his experience for the airline's future growth and stability.
The financial metrics of Southwest Airlines, including a market capitalization of approximately $16.12 billion and a trading volume of 16.57 million shares, highlight the company's significant presence in the market. The stock's performance over the past 12 months, with highs of $39.53 and lows of $21.91, further illustrates the fluctuating nature of the aviation industry and the potential for recovery and growth. The strategic appointment of Rakesh Gangwal and the revised price target from Deutsche Bank are key developments that investors and market watchers are closely monitoring as indicators of Southwest's future trajectory.
Key Insights from HSBC's Coverage on Southwest Airlines
- HSBC initiated coverage on Southwest Airlines with a Hold rating, indicating a neutral outlook.
- The airline's stock price has seen a 7.1% decline, contrasting with the broader airline industry's 5% growth.
- Earnings estimate revisions and investor interest on Zacks.com highlight the complex backdrop influencing Southwest's stock.
On Monday, May 13, 2024, HSBC initiated coverage on Southwest Airlines (NYSE:LUV) with a Hold rating, as highlighted by TheFly. This neutral stance comes at a time when LUV's stock price stood at $27.36. Southwest Airlines, a major player in the airline industry, is known for its low-cost carrier model and extensive domestic network. This rating by HSBC reflects a cautious optimism or perhaps a wait-and-see approach towards the airline, considering the broader industry dynamics and Southwest's own financial health.
Southwest Airlines has been a topic of interest on Zacks.com, indicating heightened attention from investors and market watchers. Despite a recent 7.1% decline in its stock price, contrasting with the minimal -0.2% change in the Zacks S&P 500 composite, the airline sector, in general, has seen a 5% increase. This discrepancy in performance between Southwest and its industry peers suggests that the company might be facing unique challenges or that its stock is undervalued, a situation that could have influenced HSBC's Hold rating.
The performance of Southwest's stock and the broader airline industry's upward trend raise questions about the future direction of LUV's shares. The divergence in performance, especially in the context of the airline sector's 5% growth, could indicate specific headwinds for Southwest or potentially untapped opportunities for investors. HSBC's decision to initiate coverage with a Hold rating might be rooted in these industry dynamics and Southwest's recent stock performance.
Earnings estimate revisions are a critical factor that investors watch closely, as they can significantly influence stock price movements. For Southwest Airlines, these revisions and the overall investor interest as reported by Zacks Investment Research could be pivotal in determining the stock's near-term trajectory. The attention Southwest has garnered on Zacks.com, coupled with its stock's recent performance and broader industry trends, provides a complex backdrop to HSBC's rating.
Southwest Airlines' current market capitalization stands at around $16.37 billion, with a recent slight increase in its stock price to $27.36. This financial snapshot, including the stock's fluctuation between $27.12 and $27.48 during the trading day and its performance over the past year, offers a glimpse into the company's market position. HSBC's Hold rating, in this context, suggests a cautious but not entirely pessimistic view of Southwest's potential for growth or recovery in the near future.
NTSB Highlights Maintenance Issue in Southwest Airlines Boeing 737-800 Incident
The National Transportation Safety Board (NTSB) Identifies Maintenance Issue in Southwest Airlines Incident
The National Transportation Safety Board (NTSB) has pinpointed a maintenance issue as the culprit behind a significant incident involving a Southwest Airlines Boeing 737-800, where an engine cover was lost during takeoff in Denver. This event, which saw the engine cover detach and impact the wing flap, has raised concerns over maintenance practices and quality control within the aviation industry. The aircraft, which had been serviced just the night before the incident, managed to return safely to Denver International Airport, carrying 135 passengers and six crew members without any injuries reported. This incident not only highlights the importance of stringent maintenance checks but also casts a spotlight on the broader challenges facing airlines, including Southwest Airlines Co. (LUV:NYSE), in ensuring the safety and reliability of their fleets.
Financial Impact and Analysts' Perspectives on Southwest Airlines
In the wake of this incident, financial analysts are closely monitoring Southwest Airlines, with Christopher Stathoulopoulos of Susquehanna adjusting the price target for LUV to $27, a move that reflects a cautious stance towards the airline's stock. This adjustment, as reported by TheFly, signifies a roughly 5.76% decrease from the stock's price at the time, which stood at $28.65. The decision to lower the price target from $30 to $27 comes amid concerns over the airline's operational challenges and the potential impact on its financial performance. With a price-to-earnings (P/E) ratio of approximately 35.36, investors are showing a willingness to pay a premium for the company's earnings, despite the recent incident and ongoing scrutiny over maintenance and quality control issues.
Key Financial Ratios and Metrics for Southwest Airlines
Southwest Airlines' financial metrics, such as the price-to-sales (P/S) ratio of about 0.63 and an enterprise value to sales (EV/Sales) ratio close to the same figure, suggest a valuation that reflects the company's sales performance. Additionally, the enterprise value to operating cash flow (EV/OCF) ratio of around 5.18 indicates how the market values the company in relation to its operating cash flow, an important measure of financial health and efficiency. These ratios, combined with an earnings yield of approximately 2.83%, provide investors with a snapshot of the company's financial standing and its attractiveness as an investment opportunity.
Moreover, Southwest Airlines' debt-to-equity (D/E) ratio of about 0.87 points to a moderate level of debt relative to equity, suggesting a balanced approach to financing its operations. The current ratio of approximately 1.14 further indicates that the company possesses adequate assets to cover its short-term liabilities, an essential factor in assessing its liquidity and ability to meet financial obligations. These financial indicators are crucial for investors and analysts in evaluating the airline's fiscal health, especially in light of recent operational challenges and the potential for future incidents to impact its financial performance and stock valuation.
Conclusion
As Southwest Airlines navigates through these challenges, the focus remains on addressing maintenance issues, ensuring the safety of its fleet, and maintaining investor confidence. The incident involving the Boeing 737-800 and the subsequent financial analysis by experts like Christopher Stathoulopoulos of Susquehanna serve as reminders of the intricate balance between operational safety, quality control, and financial performance in the airline industry.
