Will Southwest Earnings Keep Flying High?

Southwest Airlines (NYSE: LUV  ) will release its quarterly report tomorrow, and investors expect the quirky airline to continue its tradition of strong financials. The question, though, is whether Southwest earnings will grow as quickly as some of its peers, which have been faster to climb onto money-making strategies like baggage fees and other ancillary charges to enhance their revenue.

Unlike other airlines, though, Southwest hasn't needed those fees to be profitable. With the exception of a few quarters of high fuel costs and depressed economic conditions, Southwest has consistently made money, and it has gradually grown to become one of the largest airlines in the U.S. business. What's next for the great growth story? Let's take an early look at what's been happening with Southwest Airlines over the past quarter and what we're likely to see in its quarterly report.

Stats on Southwest Airlines

Analyst EPS Estimate

$0.38

Change From Year-Ago EPS

5.6%

Revenue Estimate

$4.66 billion

Change From Year-Ago Revenue

0.9%

Earnings Beats in Past Four Quarters

4

Source: Yahoo! Finance.

How much higher can Southwest earnings fly?
Analysts have had mixed views over the past few months about the earnings prospects for Southwest Airlines. They reined in their June-quarter estimates by $0.04 per share, but they've boosted their full-year 2013 consensus figures by $0.02, suggesting deferred earnings rather than completely disappearing profits. The stock has held its own, rising another 4% since mid-April.

We've already gotten some information about how the quarter went for Southwest from its monthly results. In April, the company saw a 4%-5% decline in unit revenue, offset by a rise of 4.1% in capacity. Those figures were largely consistent with the rest of the industry, as both US Airways (NYSE: LCC  ) and Delta Air Lines (NYSE: DAL  ) posted similar combinations of revenue and capacity changes. The same trend continued in May, as a drop of 2% in unit revenue came with a 3.4% rise in capacity.

But those somewhat troubling figures haven't stopped Southwest from moving forward with growth initiatives. The company expects to start flying to Memphis this November, filling the void from Delta's removal of its hub from the Tennessee city and expecting to become the city's biggest carrier in the long run. Moreover, the impending merger of US Airways and AMR could result in slots coming open at Washington's Reagan Airport, giving Southwest a chance to establish a foothold closer to the nation's capital than Baltimore-Washington International.

Southwest has also stood up to low-cost competitor JetBlue (NASDAQ: JBLU  ) by coming to an agreement with DISH Network to offer free live television access as well as on-demand shows at no charge. Rather than installing monitors, Southwest will make the entertainment freely available on its Wi-Fi planes, not even charging for Wi-Fi access for passengers who want only to watch the DISH offerings.

In the Southwest earnings report, watch to see whether the company responds to the changing dynamics of the airline industry. With Southwest having followed in Delta's footsteps by purchasing some used aircraft during the quarter, some believe the leadership mantle has moved off Southwest's shoulders. Yet with its loyal workforce and strong reputation for customer service, Southwest should continue its winning ways well into the future.

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  • Report this Comment On July 24, 2013, at 11:40 AM, arfkay wrote:

    Congrtulations to SouthWest for not being a greedy airline. Their smart use of only the 737's keeps their maintenance costs down. Their pilots and mechanics are experts on this aircraft because that's all they fly and work on. Their marketing and control of their airline is remarkable. SW appears to be happy with their profits and unlike other airlines does not 'fee you to death'

    I do extensive travel all year and prefer to fly SW every chance I get. After all, all I want to do is to get from point A to B on time and they have done an excellent job with that. I'll fly them for peanuts anytime.

    Good job SouthWest!

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