Most of the airline stocks flew high last week after Delta Air Lines (DAL 0.39%) reported March 2022 quarterly earnings and provided a hopeful outlook for the next quarter. Delta provided some light in a sector that's been otherwise troubled ever since the pandemic hit. The company also announced its future plans of handling more capacity as business and leisure travel return.
Southwest Airlines (LUV 1.40%) stock also surged 8% last week after Delta's positive outlook for the near future. Southwest is set to report its first-quarter results on April 28. Let's take a look at how Southwest has performed in its previous quarter and what analysts are expecting from the March quarter.
Prospects rise for the airline industry
Delta Air Lines earnings came as a ray of hope for the industry. Despite reporting an operating loss for the quarter, March was a profitable month for Delta due to robust demand. Delta expects a profitable next quarter (ending in June), with a 93% to 97% recovery in operating revenue from 2019 levels and operating profit margin in the range of 12% to 14% for the second quarter.
In March, CNN reported, Delta, Southwest, and many other airlines signed an open letter and urged President Joe Biden to "end the transportation mask mandate and testing requirements for international travelers." This initiative has been partially approved with the end of the mask mandate. It could make travelers more comfortable and boost travel demand.
Southwest Airlines could surprise with an earnings beat
In January, Southwest discussed its first-quarter guidance, hoping revenue to be down 10% to 15% from 2019 levels with a load factor (passenger seating capacity) of about 75% to 80%. Southwest also expects to have paid $60 million in debts by the first quarter's end.
Meanhwile, Wall Street analysts expect total revenue of around $4.6 billion for the first quarter of 2022, an approximate 119% increase from Q1 2021. However, analysts expect an earnings loss of $0.30 per share for the March quarter. But looking at Delta's profits in March and the surge in demand for summer travel, chances are Southwest could have managed a profitable quarter again.
Southwest already had a profitable quarter compared to its peers. It reported net profits of $68 million, or $0.11 per share, in its fourth quarter, which was its first profitable quarter since the pandemic hit. The company's full-year net income also came in at $977 million, or $1.61 per share, compared to a net loss of $3.5 billion or $6.22 per share, which was quite an improvement.
Talking about Q1 2022 in January, Southwest CEO Bob Jordan stated: "With COVID-19 cases trending downward, the worst appears to be behind us." The airline also seems to be hopeful about current bookings and revenue trends for March 2022. Southwest also hopes to return to profitability in the March quarter.
Peer American Airlines (AAL -0.21%) is also set to report its Q1 2022 earnings on April 21. Analysts expect a higher earnings loss of $2.40 per share for American for the quarter. But estimates show revenue could double to $8.8 billion compared to the prior-year quarter, reflecting the slow rise in demand as summer approaches. American has not reported a profitable quarter yet since the pandemic started.
Is Southwest Airlines stock a buy now?
With Delta's profitable month in March and a hopeful outlook for the next quarter, things look good for Southwest as well. As Delta's management mentioned, they've seen corporate travel (both domestic and international) demand rise as the omicron variant cases faded away. This could be a good sign for Southwest Airlines as well. Analysts are also hopeful for the full year and expect Southwest to recover well with total revenue of around $21 billion and a profit of $1.12 per share.
Wall Street sees an upside of 13% for Southwest stock in the next 12 months. Airline stocks could skyrocket once demand starts going back to pre-pandemic levels. For now, Southwest stock is trading below its 52-week high of $63.70, making this the right time to buy it on the dip.