Southwest Airlines Surpasses Earnings Expectations, Faces Mixed Revenue Trends

Southwest Airlines Co. (LUV) posted fourth-quarter 2024 earnings of 56 cents per share, beating the Zacks Consensus Estimate of 45 cents and representing a 51.5% increase from the same quarter last year.

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The company reported revenues of $6.93 billion, slightly below the Zacks Consensus Estimate of $6.95 billion. This represented a year-over-year increase of 1.6%, mainly driven by advancements in revenue management, marketing strategies, and strong holiday bookings in December.

Price, Consensus, and EPS Surprise Trends for Southwest Airlines

Operating Statistics Overview

In the fourth quarter, Southwest Airlines experienced a 3.1% decline in airline traffic, measured in revenue passenger miles, which totaled 34.47 billion. Capacity, measured in available seat miles (ASMs), also fell by 4.4% to 43.53 billion. Due to the smaller decline in traffic compared to capacity, the load factor rose by 1 percentage point to 79.2%, slightly below the expected 81.9%.

The passenger revenue per available seat mile (PRASM), a key metric for unit revenues, grew by 6.2% to 14.49 cents. Similarly, the revenue per available seat mile (RASM) also increased by 6.2% to 15.92 cents.

Analysis of Operating Expenses and Income

During the fourth quarter, Southwest reported an operating income of $278 million, a significant improvement from the operating loss of $404 million in the same period last year. On an adjusted basis, the operating income was $397 million, compared to $182 million a year earlier.

Total adjusted operating expenses, excluding profit sharing and fuel costs, rose by 6.3% year over year. Notably, fuel cost per gallon decreased by 19.3% to $2.42.

Additionally, consolidated unit costs (CASM) that exclude fuel and special items saw an increase of 11.1% compared to the previous year.

Liquidity Position of the Company

As of the end of the fourth quarter, Southwest Airlines had cash and cash equivalents totaling $7.50 billion, down from $8.50 billion at the end of the prior quarter. The long-term debt amounted to $5.06 billion, slightly lower from $5.07 billion in the previous quarter.

The company generated $476 million in cash from operations, while capital expenditures totaled $461 million. For 2024, LUV returned $680 million to shareholders through dividends and share buybacks and announced a $750 million accelerated share repurchase program under a larger $2.5 billion buyback authorization.

Outlook for Future Quarters

For the first quarter of 2025, Southwest expects ASMs to decline by 2%-3% compared to the previous year. Fuel costs are projected to range between $2.50 and $2.60 per gallon, with RASM anticipated to increase by 5%-7%. LUV forecasts a 7%-9% increase in CASM, excluding fuel and other special costs for the same quarter.

In the second quarter of 2025, the company expects capacity to increase between 1%-2% year-over-year. For the entirety of 2025, LUV targets an increase in operating margins (excluding special items) of 3%-5% and an ROIC growth of 5%-8% with estimated ASMs improving by 1%-2% year over year. The effective tax rate for 2025 is expected to be between 22%-24%.

By 2027, LUV aims to achieve an operating margin of over 10% and a more than 15% increase in ROIC, with ASMs expected to improve by 1%-2% annually.

LUV’s Zacks Rank

Currently, Southwest Airlines holds a Zacks Rank #2 (Buy). You can view the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Comparative Q4 Performance of Other Airlines

Delta Air Lines (DAL) reported fourth-quarter 2024 earnings of $1.85 per share, surpassing the Zacks Consensus Estimate of $1.76, marking a 44.5% year-over-year increase due to reduced fuel costs.

DAL’s revenues reached $15.56 billion, exceeding expectations of $14.99 billion, boosted by strong holiday travel demand and a 9.4% year-over-year increase. Adjusted operating revenues hit $14.44 billion, up 5.7% year-over-year.

J.B. Hunt Transport Services (JBHT) had a fourth-quarter 2024 EPS of $1.53, just below the Zacks Consensus Estimate of $1.62, though this was a 4.1% rise from the prior year.

JBHT’s total revenues were $3.15 billion, narrowly beating estimates but reflecting a 4.8% year-over-year decline primarily due to reduced fuel surcharge revenue and yield pressure in the Intermodal segment. Excluding fuel surcharge revenue, quarterly revenues decreased by 2% compared to the previous year, while operating income for the quarter rose 2% year-over-year to $207 million.

Alaska Air Group, Inc. (ALK) delivered robust fourth-quarter results, with earnings per share of 97 cents, exceeding the anticipated 47 cents and showing over 100% growth year-over-year.