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Category: Stock Market and SouthWest Airlines (LUV)
Date: 26 October 2020 Stock Price of Southwest Airlines: $42.79 We take a look at the 3rd quarter earnings report of their 2020 fiscal year of SouthWest Airlines, the airline operator that at its peaks sees more than 4000 weekday departures to 101 destinations across the United States and 10 other countries. The group has been hit hard by the Covid-19 pandemic and restrictions on travel with revenues declining almost -69% and they reported a net loss for the quarter of -$1.050 billion
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- The pandemic persists along with the negative effects on air travel demand, resulting in our third quarter net loss of approximately $1.2 billion. We are encouraged by modest improvements in leisure passenger traffic trends since the slowdown in demand experienced in July. However, until we have widely-available vaccines and achieve herd immunity, we expect passenger traffic and booking trends to remain fragile - Gary C. Kelly, Chairman of the Board and Chief Executive Officer "
About Southwest Airlines
In its 49th year of service, Dallas-based Southwest Airlines Co. (NYSE: LUV) continues to differentiate itself from other air carriers with exemplary Customer Service delivered by more than 60,000 Employees to a Customer base topping 130 million passengers annually. Southwest became the nation’s largest domestic air carrier in 2003 and maintains that ranking based on the U.S. Department of Transportation’s most recent reporting of domestic originating passengers boarded. In peak travel seasons, Southwest operates more than 4,000 weekday departures among a network of 101 destinations in the United States and 10 additional countries.
Southwest coined Transfarency® to describe its purposed philosophy of treating Customers honestly and fairly, and low fares actually staying low. Southwest is the only major U.S. airline to offer bags fly free® to everyone (first and second checked pieces of luggage, size and weight limits apply, some carriers offer free checked bags on select routes or in qualified circumstances), and there are no change fees, though fare differences might apply.
Southwest is committed to returning value to its Shareholders. Since 2010, Southwest has returned more than $11.7 billion to Shareholders through share repurchases and dividends, through September 30, 2019. In the first nine months of 2019, Southwest returned $1.8 billion to Shareholders through the repurchase of $1.45 billion in common stock and the payment of $372 million in dividends.
Southwest coined Transfarency® to describe its purposed philosophy of treating Customers honestly and fairly, and low fares actually staying low. Southwest is the only major U.S. airline to offer bags fly free® to everyone (first and second checked pieces of luggage, size and weight limits apply, some carriers offer free checked bags on select routes or in qualified circumstances), and there are no change fees, though fare differences might apply.
Southwest is committed to returning value to its Shareholders. Since 2010, Southwest has returned more than $11.7 billion to Shareholders through share repurchases and dividends, through September 30, 2019. In the first nine months of 2019, Southwest returned $1.8 billion to Shareholders through the repurchase of $1.45 billion in common stock and the payment of $372 million in dividends.
Overview of Southwest Airlines 3rd quarter 2020 earnings report
Data below refers to quarterly data unless specified otherwise:
- Revenues: $1.008 billion (down from $5.909 billion for the same period of the previous year)
- Revenues decreased by-82.9% over the last 12 months
- Operating expenses: $2.135 billion (down from $4.941 billion for the same period of the previous year)
- Operating expenses decreased by -56.8% over the last 12 months
- Net loss: -$915 million (down from $741 million from for the same period of the previous year)
- Diluted loss per share: -$1.63 (down from $1.37 for the same period of the previous year)
- Diluted weighted-average shares outstanding: 563 million (down from 542 million for the same period of the previous year)
- Cash and cash equivalents: $12.351 billion
- Cash and cash equivalents per share: $21.93
- Cash and cash equivalents makes up 66.2% of Southwest Airlines market capital
- Cash and cash equivalents makes up 34.7% of Southwest Airlines total assets
- Flight equipment: $20.943 billion
- Stockholders equity in Southwest Airlines: $10.878 billion
- Stockholders equity per Southwest Airlines share: $19.32
- Southwest Airlines is trading at 1.71 times its stockholders equity per share which is just within the expected range of between 2 and 4 that most firms tend to trade at
- The average price to book value of firms in the S&P 500 is 3.7
- Cash provided operations: $897 million
- Cash generated from operations per share: $1.59
Southwest Airlines' management commentary on their 2nd quarter 2020 results
DALLAS, Oct. 22, 2020 /PRNewswire/ -- Southwest Airlines Co. (NYSE: LUV) (the "Company") today reported its third quarter 2020 results:
Gary C. Kelly, Chairman of the Board and Chief Executive Officer, stated, "The pandemic persists along with the negative effects on air travel demand, resulting in our third quarter net loss of approximately $1.2 billion. We are encouraged by modest improvements in leisure passenger traffic trends since the slowdown in demand experienced in July. However, until we have widely-available vaccines and achieve herd immunity, we expect passenger traffic and booking trends to remain fragile. In response, we will continue to monitor demand and prudently adjust our available seat miles (ASMs, or capacity), while pursuing further revenue and cost opportunities. I am grateful to our People for maintaining a safe and reliable operation with industry-leading Customer Service2, which generated the best Net Promoter Score in our history in third quarter.
"Our top priority remains, and always will be, the safety of our Employees and Customers. We are dedicated to the Southwest Promise, first launched in May in response to the COVID-19 pandemic. The Southwest Promise encompasses our multi-layered approach to supporting the well-being of our Employees and Customers: additional cleaning throughout the Customer journey; procedures to support distancing at the airport and onboard aircraft; a requirement that Passengers and Customer-facing Employees wear face masks or face coverings; a sophisticated air distribution system that results in an exchange of cabin air every two to three minutes; and HEPA filters that remove 99.97% of airborne particles4, similar to technology found in hospitals. We are one of just a few airlines in the world that limits the number of seats available for sale to promote distancing onboard our aircraft, and we will continue to do so through November. This practice of effectively keeping middle seats open bridged us from the early days of the pandemic, when we had little knowledge about the behavior of the virus, to now. Today, aligned with science-based findings from trusted medical and aviation organizations, we will resume selling all available seats for travel beginning December 1, 2020. We are pairing this change with enhanced flexibility for Customers on fuller flights to rebook to another flight, if desired. We are working with UT Southwestern Medical Center and the Stanford University School of Medicine, and we will have access to an advisory council comprised of physician-scientists with knowledge and expertise in infectious diseases, prevention and testing protocols, and the latest medical research about COVID-19. Both of these trusted medical organizations serve as resources to provide insights that will help us evolve our policies as we continue to deliver on the Southwest Promise. According to research put forth within the last two weeks by several reputable institutions, all arriving at the same conclusion—the risk of breathing COVID-19 particles on an airplane is virtually non-existent, with the combination of air filtration and face covering requirements. The combined studies, research, and counsel we have received, thus far, give us confidence in our approach and timing of this change to the Southwest Promise.
- Third quarter net loss of $1.2 billion, or $1.96 net loss per diluted share
- Excluding special items1, net loss of $1.2 billion, or $1.99 net loss per diluted share
- Third quarter operating revenues of $1.8 billion, down 68.2 percent year-over-year
- Ended third quarter with liquidity of $15.6 billion, well in excess of debt outstanding
Gary C. Kelly, Chairman of the Board and Chief Executive Officer, stated, "The pandemic persists along with the negative effects on air travel demand, resulting in our third quarter net loss of approximately $1.2 billion. We are encouraged by modest improvements in leisure passenger traffic trends since the slowdown in demand experienced in July. However, until we have widely-available vaccines and achieve herd immunity, we expect passenger traffic and booking trends to remain fragile. In response, we will continue to monitor demand and prudently adjust our available seat miles (ASMs, or capacity), while pursuing further revenue and cost opportunities. I am grateful to our People for maintaining a safe and reliable operation with industry-leading Customer Service2, which generated the best Net Promoter Score in our history in third quarter.
"Our top priority remains, and always will be, the safety of our Employees and Customers. We are dedicated to the Southwest Promise, first launched in May in response to the COVID-19 pandemic. The Southwest Promise encompasses our multi-layered approach to supporting the well-being of our Employees and Customers: additional cleaning throughout the Customer journey; procedures to support distancing at the airport and onboard aircraft; a requirement that Passengers and Customer-facing Employees wear face masks or face coverings; a sophisticated air distribution system that results in an exchange of cabin air every two to three minutes; and HEPA filters that remove 99.97% of airborne particles4, similar to technology found in hospitals. We are one of just a few airlines in the world that limits the number of seats available for sale to promote distancing onboard our aircraft, and we will continue to do so through November. This practice of effectively keeping middle seats open bridged us from the early days of the pandemic, when we had little knowledge about the behavior of the virus, to now. Today, aligned with science-based findings from trusted medical and aviation organizations, we will resume selling all available seats for travel beginning December 1, 2020. We are pairing this change with enhanced flexibility for Customers on fuller flights to rebook to another flight, if desired. We are working with UT Southwestern Medical Center and the Stanford University School of Medicine, and we will have access to an advisory council comprised of physician-scientists with knowledge and expertise in infectious diseases, prevention and testing protocols, and the latest medical research about COVID-19. Both of these trusted medical organizations serve as resources to provide insights that will help us evolve our policies as we continue to deliver on the Southwest Promise. According to research put forth within the last two weeks by several reputable institutions, all arriving at the same conclusion—the risk of breathing COVID-19 particles on an airplane is virtually non-existent, with the combination of air filtration and face covering requirements. The combined studies, research, and counsel we have received, thus far, give us confidence in our approach and timing of this change to the Southwest Promise.
"We remain diligent in managing our cash burn. Since March, we have reduced annual 2020 cash outlays and spending by approximately $8 billion compared with original plans. Average core cash burn5 was approximately $12 million per day6 in September and $16 million per day in third quarter 2020, a sequential improvement from average core cash burn of approximately $23 million per day in second quarter 2020, primarily due to improving revenue trends. Our average core cash burn in October is currently estimated to be approximately $12 million per day, and fourth quarter 2020 is currently estimated to be approximately $11 million per day, driven primarily by continued modest improvements in close-in leisure demand and booking trends, as well as cost savings from voluntary Employee separation and leave programs. While we continue to make progress on reducing cash burn, in order to achieve cash burn break even, we estimate operating revenues will need to recover to an estimated 60 to 70 percent of 2019 levels, which is roughly double our third quarter 2020 levels.
"We are pursuing additional revenue opportunities that utilize idle aircraft and Employees to provide our legendary Customer Service to new, popular destinations. We recently published new service that we expect to commence on November 15, 2020, to both Miami International Airport and Palm Springs International Airport, as well as new seasonal service that we expect to commence on December 19, 2020, to both Montrose Regional Airport (Telluride and Crested Butte) and Yampa Valley Regional Airport (Steamboat Springs). We also recently announced our intention to add service in first half 2021 to Chicago O'Hare International Airport, and return to Houston's George Bush Intercontinental Airport, complementing existing service at Chicago Midway and Houston Hobby airports, and reinforcing a long-standing commitment by Southwest to both metropolitan areas. Today we announce our intention to add service in first half 2021 to Colorado Springs Municipal Airport, Savannah/Hilton Head International Airport in Georgia, and a return to Jackson-Medgar Wiley Evers International Airport in Mississippi. We are leveraging additional airports in cornerstone cities where our Customer base is large, along with adding easier access to popular leisure-oriented destinations from across our domestic-focused network. We entered this crisis with the U.S. airline industry's strongest balance sheet and most successful business model. These additional service points on our map are low-risk opportunities we can provide Customers now, all the while better positioning Southwest as travel demand rebounds."
Revenue Results and Outlook
The Company's third quarter 2020 operating revenues decreased 68.2 percent, year-over-year, to $1.8 billion, as a result of continued negative impacts to passenger demand and bookings due to the pandemic. Third quarter 2020 operating revenue per ASM (RASM, or unit revenues) was 6.78 cents, a decrease of 52.7 percent, driven by a load factor decrease of 38.6 points and a passenger revenue yield decrease of 23.1 percent, all year-over-year.
Following the modest improvements in passenger demand and bookings in May and June 2020, the Company experienced a stall in improving revenue trends in July 2020, due to the rise in COVID-19 cases. In August and September 2020, the Company again experienced modest improvements in close-in leisure passenger demand and bookings
Fleet and Capacity
The Company returned two leased 737-700 aircraft and retired one owned 737-700 aircraft during third quarter 2020, ending the quarter with 734 aircraft in its fleet. The Company expects to return three leased 737-700 aircraft during fourth quarter 2020. The Company has not received any 737 MAX aircraft deliveries from Boeing since February 2019. As previously disclosed, the Company has an agreement with Boeing to take no more than 48 MAX aircraft through December 31, 2021. The timeline and quantity of deliveries through 2021 is not yet finalized. However, the Company is currently in discussions with Boeing to restructure its order book, and continues to evaluate its fleet needs in light of current demand trends. Beyond 2021, the Company currently has 217 firm orders and 115 options for MAX aircraft in its order book
The Company's third quarter 2020 capacity decreased 32.8 percent, year-over-year, due to capacity reductions in light of the significant decrease in passenger demand and bookings as a result of the pandemic. The Company currently estimates October 2020 capacity to decrease approximately 45 percent, and November 2020 capacity to decrease approximately 35 percent, both year-over-year, compared with its previous estimation of October 2020 capacity to decrease in the range of 40 to 45 percent, and November 2020 capacity to decrease in the range of 35 to 40 percent, both year-over-year. The Company recently adjusted its December 2020 published flight schedule, and currently estimates its December 2020 capacity to decrease in the range of 40 to 45 percent, year-over-year. The Company estimates its fourth quarter 2020 capacity to decrease approximately 40 percent, year-over-year.
Passenger demand and booking trends remain primarily leisure-oriented and inconsistent by region. The Company remains cautious in this uncertain demand environment and continues to plan for multiple scenarios for its fleet and capacity plans. The Company will continue to monitor demand and booking trends and adjust capacity, as deemed necessary, on an ongoing basis. As such, the Company's actual flown capacity may differ materially from currently published flight schedules or current estimations.
"We are pursuing additional revenue opportunities that utilize idle aircraft and Employees to provide our legendary Customer Service to new, popular destinations. We recently published new service that we expect to commence on November 15, 2020, to both Miami International Airport and Palm Springs International Airport, as well as new seasonal service that we expect to commence on December 19, 2020, to both Montrose Regional Airport (Telluride and Crested Butte) and Yampa Valley Regional Airport (Steamboat Springs). We also recently announced our intention to add service in first half 2021 to Chicago O'Hare International Airport, and return to Houston's George Bush Intercontinental Airport, complementing existing service at Chicago Midway and Houston Hobby airports, and reinforcing a long-standing commitment by Southwest to both metropolitan areas. Today we announce our intention to add service in first half 2021 to Colorado Springs Municipal Airport, Savannah/Hilton Head International Airport in Georgia, and a return to Jackson-Medgar Wiley Evers International Airport in Mississippi. We are leveraging additional airports in cornerstone cities where our Customer base is large, along with adding easier access to popular leisure-oriented destinations from across our domestic-focused network. We entered this crisis with the U.S. airline industry's strongest balance sheet and most successful business model. These additional service points on our map are low-risk opportunities we can provide Customers now, all the while better positioning Southwest as travel demand rebounds."
Revenue Results and Outlook
The Company's third quarter 2020 operating revenues decreased 68.2 percent, year-over-year, to $1.8 billion, as a result of continued negative impacts to passenger demand and bookings due to the pandemic. Third quarter 2020 operating revenue per ASM (RASM, or unit revenues) was 6.78 cents, a decrease of 52.7 percent, driven by a load factor decrease of 38.6 points and a passenger revenue yield decrease of 23.1 percent, all year-over-year.
Following the modest improvements in passenger demand and bookings in May and June 2020, the Company experienced a stall in improving revenue trends in July 2020, due to the rise in COVID-19 cases. In August and September 2020, the Company again experienced modest improvements in close-in leisure passenger demand and bookings
Fleet and Capacity
The Company returned two leased 737-700 aircraft and retired one owned 737-700 aircraft during third quarter 2020, ending the quarter with 734 aircraft in its fleet. The Company expects to return three leased 737-700 aircraft during fourth quarter 2020. The Company has not received any 737 MAX aircraft deliveries from Boeing since February 2019. As previously disclosed, the Company has an agreement with Boeing to take no more than 48 MAX aircraft through December 31, 2021. The timeline and quantity of deliveries through 2021 is not yet finalized. However, the Company is currently in discussions with Boeing to restructure its order book, and continues to evaluate its fleet needs in light of current demand trends. Beyond 2021, the Company currently has 217 firm orders and 115 options for MAX aircraft in its order book
The Company's third quarter 2020 capacity decreased 32.8 percent, year-over-year, due to capacity reductions in light of the significant decrease in passenger demand and bookings as a result of the pandemic. The Company currently estimates October 2020 capacity to decrease approximately 45 percent, and November 2020 capacity to decrease approximately 35 percent, both year-over-year, compared with its previous estimation of October 2020 capacity to decrease in the range of 40 to 45 percent, and November 2020 capacity to decrease in the range of 35 to 40 percent, both year-over-year. The Company recently adjusted its December 2020 published flight schedule, and currently estimates its December 2020 capacity to decrease in the range of 40 to 45 percent, year-over-year. The Company estimates its fourth quarter 2020 capacity to decrease approximately 40 percent, year-over-year.
Passenger demand and booking trends remain primarily leisure-oriented and inconsistent by region. The Company remains cautious in this uncertain demand environment and continues to plan for multiple scenarios for its fleet and capacity plans. The Company will continue to monitor demand and booking trends and adjust capacity, as deemed necessary, on an ongoing basis. As such, the Company's actual flown capacity may differ materially from currently published flight schedules or current estimations.
Southwest Airlines (NYSE: LUV) stock price history
The image below, obtained from Google, shows the stock price history of Southwest over the last 5 years. And was a pretty good time for Southwest stockholders until the Covid-19 pandemic hit. 5 years ago the stock was trading at around $46.30 a stock and its currently trading at $42.79 a stock. That's a loss of -5.4% suffered by Southwest stockholders over the last 5 years.
The stock of Southwest Airlines is trading at a lot closer to its 52 week high of $58.83 than it is to its 52 week low of $22.46 which to us is a clear indication that the short term sentiment and momentum of Southwest Airlines is very negative right now, and rightly so considering the impact Covid-19 is having on their business
The stock of Southwest Airlines is trading at a lot closer to its 52 week high of $58.83 than it is to its 52 week low of $22.46 which to us is a clear indication that the short term sentiment and momentum of Southwest Airlines is very negative right now, and rightly so considering the impact Covid-19 is having on their business
Southwest Airlines (LUV) vs American Airlines (AAL) stock vs Delta Airlines (DAL)
The image below shows the stock price performance of Southwest Airlines (LUV), American Airlines (AAL) and Delta Airlines (DAL) over the last 5 years. And from the image it is clear that it's not been a good time for any of the airlines over the last 5 years. Especially since the start of February 2020. The summary below shows the return of the three airline stocks in question over the last 5 years.
So Southwest Airlines have been by far the best performer over the last 5 years while the stock of American Airlines have been by far the worst performer over the last 5 years.
- Southwest Airlines (LUV): -9.6%
- Delta Airlines (DAL): -18.9%
- American Airlines (AAL): -70.1%
So Southwest Airlines have been by far the best performer over the last 5 years while the stock of American Airlines have been by far the worst performer over the last 5 years.
Recent coverage of Southwest Airlines
The extract below discusses the latest news regarding Southwest Airlines as obtained from Finance.yahoo.com
Southwest Airlines Co. (NYSE:LUV) just released its quarterly report and things are looking bullish. Revenues and losses per share both beat expectations, with revenues of US$1.8b leading estimates by 5.1%. Statutory losses were somewhat smaller thanthe analysts expected, coming in at US$1.96 per share. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Read the full article here
Southwest Airlines Co. (NYSE:LUV) just released its quarterly report and things are looking bullish. Revenues and losses per share both beat expectations, with revenues of US$1.8b leading estimates by 5.1%. Statutory losses were somewhat smaller thanthe analysts expected, coming in at US$1.96 per share. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Read the full article here
Southwest Airlines (NYSE: LUV) latest stock valuation
So what is Southwest Airlines stock worth based on the release of their latest earnings report? Based on the earnings report and fiscal guidance provided by Southwest Airlines our our valuation models provide a target price (full value price) for Southwest Airlines stock at $51.70 a stock. We therefore believe that the stock of Southwest Airlines is undervalued
We usually suggest that long term and fundamental investors get in at least 10% below our target price (full value price) which in this case is $51.70. Therefore we believe a good entry point into Southwest Airlines stock is at $46.50 or below. We expect the stock price of Southwest Airlines to increase to levels to closer to our target price in coming weeks and months.
Since the stock of Southwest Airlines is trading at well below our suggested entry price we rate the stock as a buy
We usually suggest that long term and fundamental investors get in at least 10% below our target price (full value price) which in this case is $51.70. Therefore we believe a good entry point into Southwest Airlines stock is at $46.50 or below. We expect the stock price of Southwest Airlines to increase to levels to closer to our target price in coming weeks and months.
Since the stock of Southwest Airlines is trading at well below our suggested entry price we rate the stock as a buy
Next earnings release date for Southwest Airlines
It is expected that Southwest Airlines 4th quarter 2020 earnings report will be released in late January 2021.