Airline stock to watch: Southwest Airlines Co (NYSE: LUV)

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Southwest Airlines Co (NYSE: LUV) stock rose over 1.3% on 25th April, 2019 (as of 1:37 pm GMT-4; Source: Google finance) after the company posted better than expected earnings for the first quarter of FY 19 and forecast better-than-expected second-quarter revenue growth, on the back of demand from leisure and business customers, even as the low-cost carrier is forced to cancel flights due to the grounding of Boeing’s 737 MAX jets. Southwest reported a first-quarter net profit of $387 million compared with $463 million in the year-ago quarter. Southwest said the combination of canceled flights, the December-January partial government shutdown, and soft demand for leisure travel cuts its first-quarter profit by $150 million.

Airline stock to watch: Southwest Airlines Co (NYSE: LUV)

LUV in the first quarter of FY 19 has reported the adjusted earnings per share of 70 cents, beating the analysts’ estimates for the adjusted earnings per share of 69 cents, according to IBES data from Refinitiv. Analysts cut their estimates sharply in late March after regulators around the world grounded Boeing’s 737 MAX jets following two fatal crashes. LUV has said its 34 737 MAX aircraft represent less than 5 percent of daily flights on its fleet of 753 aircraft. Southwest said it lost more than $200 million in revenue during the first quarter after cancelling more than 10,000 flights because of the partial U.S. government shutdown, winter storms, maintenance disruptions and the worldwide MAX grounding. Revenue rose 4% to $5.15 billion, slightly better than analysts’ expectations, but operating costs soared 7%, led by higher labor expenses. Revenue for each seat flown one mile rose 2.7% in the first quarter. The sales were hurt by the death of a passenger whose window was shattered by debris from a broken engine.

Moreover, the unit costs, or total operating expenses per available seat mile, increased 6.5 percent on an adjusted basis in the first quarter and are expected to increase by 10.5 percent to 12.5 percent year-on-year in the second quarter. Still, the company said it expected closely watched unit revenue to grow by 5.5 percent to 5.7 percent year-on-year in the second quarter. It reported only 2.7 percent growth in the first-quarter.

Additionally, as of March 31, 2019, the Company had approximately $3.9 billion in cash and short-term investments, and a fully available unsecured revolving credit line of $1 billion. During first quarter 2019, Fitch Ratings upgraded the Company’s senior unsecured debt to “A-” with an outlook of “Stable.”

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