Southwest Wins Handily in Q3 Despite Hurricanes

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When Southwest Airlines Co. (NYSE: LUV) released its third-quarter financial results before the markets opened on Thursday, the company reported $0.88 in earnings per share (EPS) and $5.27 billion in revenue. Consensus estimates from Thomson Reuters had called for $0.87 in EPS on revenue of $5.31 billion. The same period of last year reportedly had EPS of $0.93 and $5.14 in revenue.

The company’s third-quarter 2017 total operating revenues increased 2.6% year over year, driven largely by third-quarter record passenger revenues of $4.7 billion, despite an approximate $100 million reduction as a result of the natural disasters.

Third-quarter 2017 passenger revenue yield decreased 0.9%, due to the competitive yield environment. Also operating unit revenues (revenue per available seat mile, or RASM) decreased 0.5%. This included headwinds of less than a point from Southwest’s new reservation system that is not expected to continue in fourth quarter 2017.

Based on these trends and current bookings, the company expects fourth quarter 2017 RASM to increase in the range of up slightly to up 1.5%.

Excluding fuel and oil expense and special items in both periods, operating expenses increased 7.1%. Based on current cost trends, Southwest estimates fourth quarter 2017 unit costs, excluding fuel and oil expense, special items, and profit-sharing expense, to be in the range of flat to up 1.5%.

Looking ahead, the consensus estimates call for $0.88 in earnings per share (EPS) and $5.22 billion in revenue for the fourth quarter.

Gary C. Kelly, board chair and chief executive, commented:

We are very pleased to report another quarter of strong profits and margins, particularly considering the impact of the unprecedented natural disasters. As a result of Hurricanes Harvey and Irma and the earthquakes, we canceled 5,000 flights which reduced revenues by approximately $100 million in third quarter 2017. Our People’s efforts to provide humanitarian flights, supplies, and financial assistance to Coworkers, Customers, and the communities impacted were truly heroic.

Shares of Southwest were last seen up 2.5% at $58.57 early Thursday, with a consensus analyst price target of $65.79 and a 52-week range of $37.65 to $64.39.