Southwest (LUV) May Incur Q4 Loss Post Flight Cancellations
It is no longer news that Southwest Airlines LUV was the worst-affected U.S. airline in terms of flight cancellations due to unfavorable weather conditions during the Christmas holiday weekend. Naturally, management expects the mass cancellations to hurt its fourth-quarter 2022 results, scheduled to be released on Jan 26, 2023.
Per a SEC filing, LUV had to cancel in excess of 16,700 flights in the Dec 21 – Dec 31, 2022 timeframe due to the inclement weather. Following the massive cancellations, LUV expects available seat miles (a measure of capacity) to decline approximately 6% in fourth-quarter 2022 from fourth-quarter 2019 actuals. The previous guidance hinted at a 2% decline in available seat miles for fourth-quarter 2022.
Revenues are likely to be adversely impacted to the tune of $400-$425 million. LUV now expects to incur a net loss in the December quarter. Following the massive flight cancellations, management expects a pre-tax hit in the $725 million to $825 million band to fourth-quarter earnings.
Zacks Rank & Key Picks
Southwest Airlines currently carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank stocks here.
Investors interested in the broader Transportation sector may, however, consider the following stocks sporting a Zacks Rank #1 (Strong Buy):
American Airlines AAL: Continued recovery in air-travel demand, particularly on the domestic front, bodes well for American Airlines. Driven by soaring demand on healthy bookings, management expects total revenues in the fourth quarter of 2022 to be roughly 11-13% higher than fourth-quarter 2019 levels. Total revenues per available seat mile are expected to be 18-20% higher than fourth-quarter 2019 actuals.
With air travel demand having improved, American Airlines is constantly looking to add routes and broaden its network. The carrier's debt-reduction efforts are impressive as well. Management aims to reduce its debt by $15 billion by 2025-end. As of Sep 30, the carrier reduced its debt levels by $5.6 billion from peak levels in the second quarter of 2021.
Scorpio Tankers STNG is engaged in the seaborne transportation of refined petroleum products via global shipping markets. Efforts to upgrade its fleet are commendable. An uptick in voyage revenues with the rise in passengers augurs well for this shipping stock.
The STNG stock has soared 285% in a year’s time. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has moved 36.2% north. STNG currently has a Growth Score of B.
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Southwest Airlines Co. (LUV) : Free Stock Analysis Report
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