Southwest Airlines First-Quarter Results Beats Expectations Despite Boeing 737 MAX Groundings

Southwest Airlines (LUV) unveiled guidance for its second quarter on Thursday as it posted better-than-expected results for its first quarter despite the impact of Boeing 737 MAX aircraft being grounded, unscheduled maintenance and severe weather.

The Dallas, Texas-headquartered company posted total operating revenue of $5.15 billion in the three months ended March 31, up 4.1% from the prior-year quarter. This was ahead of the consensus estimate of analysts polled by Capital IQ for $5.14 billion.

The bulk of revenue came from the passenger business, which had $4.75 billion, up 3.5% from a year earlier. Freight revenue was unchanged year-on-year at $42 million and other revenue was 14.2% higher at $362 million.

The results were supported by an increase in passenger revenue miles to 30.7 million, up 0.9% from the corresponding quarter of the prior year. Available seat miles were up 1.4% to 37.9 million and the volumes of trips rose by 0.1% to 326,390.

However, several headwinds contributed to a negative revenue impact of more than $200 million, including the grounding of Boeing 737 MAX aircraft, unscheduled maintenance disruptions, severe winter weather, the US government shutdown, and softer leisure revenue trends, the company said.

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First quarter 2019 operating revenue per available seat mile increased 2.7%, driven largely by a passenger revenue yield increase of 2.6%, offset slightly by a load factor decline of one-half point, year-over-year, to 81.0%.

Adjusted earnings per share came in at $0.70, down from $0.75 a year earlier, but above the Street’s forecast for $0.62.

“Our first quarter 2019 net income was solid despite unexpected headwinds significantly impacting our performance,” Gary Kelly, chief executive of Southwest Airlines, said. “Our People were tasked with minimizing disruptions for our customers due to more than 10,000 flight cancellations arising from the grounding of the Boeing 737 MAX 8 aircraft, unscheduled maintenance disruptions in connection with efforts to reach a tentative agreement with the Aircraft Mechanics Fraternal Association, and severe winter weather.”

The company is targeting second quarter 2019 revenue per available seat mile to increase by between 5.5% and 7.5%, compared with the second quarter of 2018.