Wednesday, October 26, 2016

Southwest Airlines Tumbles as Revenue Falls

Southwest Airlines' earnings in the third quarter topped analysts' estimates but the stock tumbled almost 7% in premarket trading on Wednesday.

Southwest reported adjusted earnings of 93 cents a share on net income of $582 million, better than consensus estimates of 88 cents.

However, both total revenue and average revenue per available seat mile (RASM) fell during the period, with total revenue down 3.2% to $5.1 billion, and RASM down by 4.1%. Helping to darken the mood among investors, management also warned that fourth-quarter RASM is expected to decline by between 4% and 5%, a consequence of overcapacity across the airline industry.

Operating costs also grew sharply during the recent quarter. Stripping out fuel, oil expenses and special items, costs rose 6.8% to $4.4 billion. Management project that operating costs will rise by somewhere between 4% and 5% during the fourth quarter.

"We will continue to manage our growth prudently in light of the revenue environment and increasing fuel prices. We plan to slow our 2017 available seat mile growth rate to less than 4.0%, year-over-year," said CEO Gary C Kelly.

Analysts expect the company to report net income of $2.4 billion and earnings per share of $3.77 for the full year.

Southwest stock fell 6.7% in premarket trading to $39.15. The stock has fallen 2.5% so far this year.

(James Skinner - The Street)

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