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Southwest Airlines (NYSE:LUV) is expected to post lower quarterly per-share earnings when it announces third-quarter results on Oct. 26, facing headwinds from costlier fuel and peaking airfares.
While the demand for air travel remains robust in the current sticky inflationary environment, fuel costs, which make up majority of the input costs, have climbed higher amid tightening supply.
The Dallas-Texas-based company, last month, said it expects third-quarter revenue per available seat mile to be down 5% -7% compared to a prior estimate for a decrease of 3% – 7%.
While costs are increasing, investors are also taking note of peaking airfares. In September, airline fares in the U.S. fell 13.4% compared to last year. But on a month-on-month basis, airfares were up 0.3% last month after rising 4.9% in August.
The major U.S. domestic carrier is estimated to post a third-quarter EPS of $0.39 (-22.0% Y/Y) meanwhile, revenue is estimated to grow about 5.6% to $6.57B on account of a healthy leisure demand.
On its part, Southwest expected to expect overall corporate travel to keep its planes busy in the sky and forecasted record third-quarter operating revenues, even as it noted August close-in leisure bookings to be on the lower end of its expectations.
Peers Delta Air Lines (DAL) topped its third-quarter expectations aided by a strong summer demand meanwhile, American Airlines (AAL) slashed its 2023 per-share earnings forecast on account of higher fuel prices and softening demand.
In the previous quarter, Southwest saw its revenue rise about 4.6%, however, revenue per available seat mile decreased by 8.3% during the quarter.
Over the last two years, LUV has beaten EPS estimates 50% of the time and has beaten revenue estimates 75% of the time.
Over the last three months, EPS estimates have seen 0 upward revisions and 15 downward. Revenue estimates have seen 0 upward revisions and 11 downward.
Since the start of the year, shares of Southwest Airlines have dropped 27.5%. LUV is marked “Hold” by SA Quant ratings on a score of 2.76 out of 5.
