Southwest Airlines Provides Operational And Financial Business Update; Shares Gain

Shares of Southwest Airlines jumped nearly 1.8% on Monday to close at $62.10 after the world’s largest low-cost carrier airline announced an operational and financial update on its business.

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Southwest Airlines’ (LUV) passenger demand and operating revenues were in-line with the company’s expectations for February, thanks to an improvement in leisure passenger bookings.

Following this, the company forecasts operating revenues for March to decline 15% to 20% year-over-year, better than the prior assumption of 20% to 30%, on an expected rise in passenger traffic and fare. For April, the company projects revenues to decline 45% to 55% compared to 2019.

Southwest Airlines anticipates capacity for the first quarter of 2021 to decline about 35% year-over-year.

Being cautious in the current uncertain demand environment, the company continues to plan for multiple capacity scenarios. Southwest Airlines will continue to monitor demand and booking trends and adjust capacity, as deemed necessary, on an ongoing basis, the company said.

For the first quarter of 2021, the company projects economic fuel costs to be in the range of $1.65 to $1.75 per gallon, up from the prior range of $1.60 to $1.70. The outlook revision comes on the heels of the company’s existing fuel derivative contracts and market prices as of March 11, 2021. (See Southwest Airlines stock analysis on TipRanks)

Additionally, Southwest Airlines continues to expect total operating expenses to decrease in the range of 15%-20% year-over-year, which excludes fuel and oil expenses and special items.

The average core cash burn is likely to be $14 million per day, better than the prior assumption of $15 million. The decrease is mainly due to improving operating revenue trends, which has mostly mitigated the impact of higher fuel prices.

Recently, Citigroup analyst Stephen Trent increased the stock’s price target to $50 (19.5% downside potential) from $40 and maintained a Hold rating.

Trent “applied a higher early cycle target multiple to the shares, which considers markets pricing in a recovery more efficiently and quickly versus the speed at which earnings estimates can change.”

Wall Street analysts are cautiously optimistic about the stock. The Moderate Buy consensus rating breaks down into 9 Buy ratings, 2 Hold ratings, and 1 Sell rating. The average analyst price target stands at $60 and implies downside potential of 3.4% to current levels. Shares have rallied almost 38% so far this year.