Southwest Airlines Co. (NYSE:LUV) has released its financial results for the second quarter of 2023, revealing that it achieved earnings per share (EPS) of $1.09. This figure exceeded the Zacks Consensus Estimate of $1.08, although it represented a 16.2% decline from the previous year.
The company’s revenues during the quarter reached $7,037 million, also outperforming the Zacks Consensus Estimate of $6,988.7 million. This 4.6% year-over-year increase in revenues was primarily driven by robust demand in the leisure segment.
Southwest Airlines experienced a substantial surge in airline traffic, with revenue passenger miles jumping by 9.2% to 35.50 billion in the quarter under review. The available seat miles (ASMs) also increased, rising by 14.1% year over year to 42.58 billion. Despite the increase in capacity, the load factor (percentage of seats filled by passengers) dropped to 83.4%, compared to 87.1% in the same quarter of the previous year.
Key metrics reflecting unit revenues showed a decrease, as passenger revenue per available seat mile declined by 8.2% year over year to 15.05 cents, and revenue per available seat mile fell 8.3% to 16.53 cents.
During the second quarter, Southwest Airlines reported an operating income of $795 million, reflecting a 31.3% decline compared to the previous year. On an adjusted basis, excluding special items, the company’s operating income amounted to $807 million, down 31.2% year over year. Total adjusted operating expenses, excluding profit-sharing, special items, fuel, and oil expenses, increased by 22.6%.
The cost of fuel per gallon (inclusive of fuel tax: economic) experienced a significant drop of 22.6% to $2.60. However, the consolidated unit cost or cost per available seat mile (CASM) excluding fuel, oil, profit-sharing expenses, and special items increased by 7.5% year over year.
As of the end of the second quarter, Southwest Airlines boasted cash and cash equivalents of $9,158 million, showing growth from $8,359 million at the end of March 2023. Additionally, the company’s long-term debt (excluding current maturities) amounted to $7,994 million at the end of June 2023, compared to $7,999 million at the close of March 2023.
Cash flow from operating activities in the reported quarter reached $1,416 million, while capital expenditures (CapEx) totaled $925 million.
Q3 & Full-Year Outlook
Looking ahead to the third quarter of 2023, Southwest Airlines projects a 12% improvement in ASMs compared to the same period last year. Economic fuel costs per gallon are expected to range between $2.55 and $2.65. The company anticipates that CASM, excluding fuel, oil, profit-sharing expenses, and special items, will rise by 3.5% to 6.5% in Q3, relative to the comparable period in 2022. Interest expenses are predicted to reach $63 million during the third quarter.
For the full year 2023, Southwest Airlines maintains its expectation of a 14-15% capacity improvement compared to 2022 levels. Economic fuel costs per gallon are now estimated to range from $2.70 to $2.80, adjusted from the previous estimate of $2.60 to $2.70. Furthermore, the company now anticipates a decrease of 1-2% in CASM, excluding fuel, oil, profit-sharing expenses, and special items, compared to the previously expected decrease of 2-4% from 2022.
Interest expenses for 2023 are now projected to amount to $255 million, adjusted from the previous estimate of $250 million. The effective tax rate for the year is expected to remain within the range of 23-24%. Capital expenditures for 2023 are anticipated to remain around $3.5 billion, in line with earlier projections.
Featured Image: Pexels @ Jeffry Surianto
Author Faith Yakubu 
