Southwest Airlines (LUV) December Traffic Grows; Stock Up

Low-cost carrier Southwest Airlines Co. LUV saw its shares gain 2.07% by the close of business on Jan 10, after it announced impressive traffic numbers for Dec 2016. The company recorded a 4.2% improvement in revenue passenger miles or RPMs (a measure of air traffic) on a year-over-year basis to 10.45 billion. Available seat miles or ASMs (a measure of capacity) also improved 4.8% to 12.65 billion.

Another important metric – load factor (percentage of seats filled by passengers) – deteriorated 40 basis points (bps) to 82.6% during the month as capacity expansion outpaced traffic growth.

For full-year 2016, Southwest Airlines reported a 6.2% rise in RPMs to 124.80 billion and a 5.7% increase in ASMs to 148.52 billion, both a year-over-year basis. Total load factor increased 40 bps to 84%.

The passenger count in December and at the end of the year grew 4.5% and 5.5%, respectively.

We note that the company’s stock has comfortably outperformed the Zacks categorized Transportation-Airline industry over the last three months. The stock has gained over 28.32% compared with the industry, which has advanced just 19.42% over the same period.

Southwest Airlines continues to face competition in the airline space from peers like JetBlue Airways Co. JBLU, Delta Air Lines Inc. DAL, and Alaska Air Group Inc. ALK.

RASM Guidance Improved

Southwest Airlines has revised its operating revenue per ASM (RASM) guidance for the fourth quarter of 2016. RASM is now expected to decline in the range of 3–4% from the fourth quarter of 2015. The earlier guidance had estimated a decline in the range of 4% to 5%. The improvement in outlook is due to better close-in yields and traffic results for December.

This apart, Southwest Airlines announced that it has appointed Thomas M. Nealon as its President and Michael G. Van de Ven as its Chief Operating Officer, effective immediately.

(Zacks Equity Research - Zacks)