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LUV now anticipates its fourth-quarter revenue per available seat mile (RASM or unit revenues) to increase in the range of 5.5%-7% on a year-over-year basis. This marks an improvement from the previous forecast of growth of 3.5% to 5.5%. The upside was owing to better-than-expected leisure travel demand, and the company's revenue management techniques paid off.
The solid growth in unit revenues is backed by consistent travel demand and benefits from the successful execution of tactical actions (which includes improving network optimization and capacity rationalization, marketing and distribution evolution, and continued efforts to advance revenue management techniques).
Considering recent revenue trends and forward bookings, including fourth-quarter holiday travel, LUV is hopeful that solid revenue trends and tactical initiative performance will continue into 2025.
The positive sentiment surrounding LUV stock is evident from the fact that the fourth-quarter and full-year 2024 bottom-line estimates have been revised upward in the past 60 days.
Image Source: Zacks Investment Research
Apart from LUV, American Airlines (AAL - Free Report) and JetBlue Airways Corporation (JBLU - Free Report) have also provided encouraging fourth-quarter 2024 guidance backed by upbeat travel demand.
AAL lifted its fourth-quarter 2024 adjusted earnings per share guidance owing to favorable pricing and revenue environment. JBLU anticipates its fourth-quarter revenues to decline in the range of 2-5% on a year-over-year basis. This marks an improvement from the previous guidance of a 3%-7% decline. For 2024, total revenues are forecasted to tumble in the range of 3.5-4.5% (prior view: down 4-5%).
Some Other Tailwinds Working in Favor of LUV Stock
Apart from issuing encouraging guidance, LUV is actively advancing its fleet strategy (as announced at Investor Day 2024) and currently anticipates completing an initial transaction by early 2025. The strategy aims to realize value from LUV’s current fleet and order book through aircraft sales and sale-leaseback transactions. LUV continues to plan for a balanced capital allocation approach utilizing funds generated from its fleet strategy and excess cash from the balance sheet to offset future capital expenditures, reduce outstanding debt obligations, and provide shareholder returns.
Southwest Airlines continues to plan for approximately 20 Boeing (BA - Free Report) 737-8 aircraft deliveries and now anticipates 40 aircraft retirements in 2024 (which comprises of 36 Boeing 737-700s and four Boeing 737-800s).
On a shareholder-friendly note, LUV aims to start an additional $750 million accelerated share repurchase (ASR) program in the first quarter of 2025, following the completion of the $250 million ASR announced in October 2024. Subsequent to the launch of the $750 million ASR program, LUV will have $1.5 billion available under its $2.5 billion share repurchase program authorized by its board of directors in September 2024.
LUV’s Impressive Price Performance
Driven by upbeat air travel, LUV’s shares have outperformed its industry in the past month.
One-Month Price Comparison
Image Source: Zacks Investment Research
Impressive Valuation Picture for LUV Stock
From a valuation perspective, LUV has been trading at a discount compared with the industry. Southwest Airlines’ forward 12-month price-to-sales, a commonly used multiple for valuing airline stocks, reading is also below its median in the past five years. The company has a Value Score of B.
Image Source: Zacks Investment Research
Rising Expenses Weigh on Southwest Airlines Stock
The rise in labor and airport costs will likely continue to dent bottom-line performance. Evidently, operating expenses were up 10% in the first nine months of 2024, with expenses on salaries, wages and benefits increasing 12.8%.
Consolidated operating costs per available seat mile (excluding fuel, oil and profit-sharing expenses, and special items) rose 7.5% year over year to 11.86 cents in the first nine months of 2024. For fourth-quarter 2024, LUV expects CASM, excluding fuel, oil and profit-sharing expenses, and special items, to increase 11-13% from the comparable period in 2023.
Economic fuel cost per gallon for the fourth quarter is now expected to be in the range of $2.35-$2.45 (prior view: $2.25 to $2.35). Higher fuel costs do not bode well for the company’s bottom line, as fuel expenses represent a key input cost for any transportation player.
How Should Investors Approach LUV Stock?
It is understood that LUV stock is attractively valued, and upbeat air travel demand is contributing to its top line. We believe that the positives surrounding the stock (as highlighted throughout the write-up) outweigh the concerns regarding escalating labor costs. We, therefore, suggest investors to add LUV stock to their portfolios for healthy returns. The company’s Zacks Rank #2 (Buy) further supports our thesis. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Is LUV Stock a Buy Post Encouraging Q4 Unit Revenue Outlook?
Dallas, TX-based airline heavyweight Southwest Airlines Co. (LUV - Free Report) has unveiled encouragingfourth-quarter 2024 revenue guidance.
LUV now anticipates its fourth-quarter revenue per available seat mile (RASM or unit revenues) to increase in the range of 5.5%-7% on a year-over-year basis. This marks an improvement from the previous forecast of growth of 3.5% to 5.5%. The upside was owing to better-than-expected leisure travel demand, and the company's revenue management techniques paid off.
The solid growth in unit revenues is backed by consistent travel demand and benefits from the successful execution of tactical actions (which includes improving network optimization and capacity rationalization, marketing and distribution evolution, and continued efforts to advance revenue management techniques).
Considering recent revenue trends and forward bookings, including fourth-quarter holiday travel, LUV is hopeful that solid revenue trends and tactical initiative performance will continue into 2025.
The positive sentiment surrounding LUV stock is evident from the fact that the fourth-quarter and full-year 2024 bottom-line estimates have been revised upward in the past 60 days.
Apart from LUV, American Airlines (AAL - Free Report) and JetBlue Airways Corporation (JBLU - Free Report) have also provided encouraging fourth-quarter 2024 guidance backed by upbeat travel demand.
AAL lifted its fourth-quarter 2024 adjusted earnings per share guidance owing to favorable pricing and revenue environment. JBLU anticipates its fourth-quarter revenues to decline in the range of 2-5% on a year-over-year basis. This marks an improvement from the previous guidance of a 3%-7% decline. For 2024, total revenues are forecasted to tumble in the range of 3.5-4.5% (prior view: down 4-5%).
Some Other Tailwinds Working in Favor of LUV Stock
Apart from issuing encouraging guidance, LUV is actively advancing its fleet strategy (as announced at Investor Day 2024) and currently anticipates completing an initial transaction by early 2025. The strategy aims to realize value from LUV’s current fleet and order book through aircraft sales and sale-leaseback transactions. LUV continues to plan for a balanced capital allocation approach utilizing funds generated from its fleet strategy and excess cash from the balance sheet to offset future capital expenditures, reduce outstanding debt obligations, and provide shareholder returns.
Southwest Airlines continues to plan for approximately 20 Boeing (BA - Free Report) 737-8 aircraft deliveries and now anticipates 40 aircraft retirements in 2024 (which comprises of 36 Boeing 737-700s and four Boeing 737-800s).
On a shareholder-friendly note, LUV aims to start an additional $750 million accelerated share repurchase (ASR) program in the first quarter of 2025, following the completion of the $250 million ASR announced in October 2024. Subsequent to the launch of the $750 million ASR program, LUV will have $1.5 billion available under its $2.5 billion share repurchase program authorized by its board of directors in September 2024.
LUV’s Impressive Price Performance
Driven by upbeat air travel, LUV’s shares have outperformed its industry in the past month.
One-Month Price Comparison
Impressive Valuation Picture for LUV Stock
From a valuation perspective, LUV has been trading at a discount compared with the industry. Southwest Airlines’ forward 12-month price-to-sales, a commonly used multiple for valuing airline stocks, reading is also below its median in the past five years. The company has a Value Score of B.
Rising Expenses Weigh on Southwest Airlines Stock
The rise in labor and airport costs will likely continue to dent bottom-line performance. Evidently, operating expenses were up 10% in the first nine months of 2024, with expenses on salaries, wages and benefits increasing 12.8%.
Consolidated operating costs per available seat mile (excluding fuel, oil and profit-sharing expenses, and special items) rose 7.5% year over year to 11.86 cents in the first nine months of 2024. For fourth-quarter 2024, LUV expects CASM, excluding fuel, oil and profit-sharing expenses, and special items, to increase 11-13% from the comparable period in 2023.
Economic fuel cost per gallon for the fourth quarter is now expected to be in the range of $2.35-$2.45 (prior view: $2.25 to $2.35). Higher fuel costs do not bode well for the company’s bottom line, as fuel expenses represent a key input cost for any transportation player.
How Should Investors Approach LUV Stock?
It is understood that LUV stock is attractively valued, and upbeat air travel demand is contributing to its top line. We believe that the positives surrounding the stock (as highlighted throughout the write-up) outweigh the concerns regarding escalating labor costs. We, therefore, suggest investors to add LUV stock to their portfolios for healthy returns. The company’s Zacks Rank #2 (Buy) further supports our thesis. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.