Southwest Airlines (LUV, Financial) reported first-quarter revenue of $6.4 billion, matching market expectations. Despite the challenging economic environment, the airline remains focused on its transformation strategy, boasting industry-leading on-time performance and improved operational metrics.
The company successfully surpassed its cost guidance, aligning with an ambitious cost-reduction target announced last month. Among recent strategic moves, Southwest introduced Expedia as a new distribution channel and enhanced its loyalty program, both showing promising results.
Southwest is set to introduce basic economy and baggage fees for most fare options next month. By the third quarter of 2025, the airline plans to sell assigned and extra legroom seats, with operation starting early next year. These initiatives aim to bolster commercial offerings and financial outcomes, benefiting both customers and shareholders.
Looking forward, Southwest remains committed to maintaining a robust, investment-grade balance sheet. A flexible contractual order book with Boeing supports this goal. To optimize operations, the company is reducing capacity in the latter half of this year, expecting a modest 1% increase in full-year 2025 capacity compared to the previous year.
The airline credits its success to the resilience and operational excellence of its team, emphasizing the unique hospitality extended to its customers. Southwest is confident that its strategic plans will continue to yield value and is dedicated to executing these plans while managing operational factors within its control.
Wall Street Analysts Forecast
Based on the one-year price targets offered by 18 analysts, the average target price for Southwest Airlines Co (LUV, Financial) is $29.70 with a high estimate of $42.00 and a low estimate of $19.00. The average target implies an upside of 16.39% from the current price of $25.52. More detailed estimate data can be found on the Southwest Airlines Co (LUV) Forecast page.
Based on the consensus recommendation from 23 brokerage firms, Southwest Airlines Co's (LUV, Financial) average brokerage recommendation is currently 3.1, indicating "Hold" status. The rating scale ranges from 1 to 5, where 1 signifies Strong Buy, and 5 denotes Sell.
Based on GuruFocus estimates, the estimated GF Value for Southwest Airlines Co (LUV, Financial) in one year is $35.57, suggesting a upside of 39.38% from the current price of $25.52. GF Value is GuruFocus' estimate of the fair value that the stock should be traded at. It is calculated based on the historical multiples the stock has traded at previously, as well as past business growth and the future estimates of the business' performance. More detailed data can be found on the Southwest Airlines Co (LUV) Summary page.
Key Business Developments
Release Date: January 30, 2025
- Unit Revenue Improvement: Fourth quarter unit revenues increased by 8% year-over-year.
- RASM Growth: Fourth quarter RASM was up 8% year-over-year, exceeding prior guidance.
- CASM-X Increase: Fourth quarter CASM-X increased 11.1% year-over-year; full year 2024 CASM-X increased 7.8% year-over-year.
- Aircraft Deliveries: Closed out 2024 with 22 aircraft deliveries, in line with internal estimates.
- Capacity Growth: Modest capacity plan of 1% to 2% year-over-year growth for 2025.
- Fleet Retirement: Planning to retire 51 aircraft in 2025.
- Capital Expenditures: Full year 2024 gross capital expenditures were $2.1 billion; net capital expenditures were $1.2 billion.
- Shareholder Returns: Returned $680 million to shareholders in 2024, including $430 million in dividends and $250 million in share repurchases.
- Share Repurchase Authorization: Planning for an additional $750 million ASR program later this quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Southwest Airlines Co (LUV, Financial) achieved an industry-leading completion factor with less than 1% of flights canceled during the year.
- Fourth quarter RASM was up 8% year-over-year, exceeding prior guidance and demonstrating strong revenue performance.
- The company has made significant progress on its Southwest Even Better plan, which includes strategic initiatives to boost efficiency and lower costs.
- Southwest Airlines Co (LUV) has signed its first commercial agreement with Iceland Air, expanding its network and customer travel options.
- The company is committed to maintaining a strong balance sheet and has an investment-grade rating from all three rating agencies.
Negative Points
- Southwest Airlines Co (LUV) is experiencing above-normal unit cost inflation, particularly in market-driven wage rates, airport costs, and healthcare.
- The company has a conservative assumption of 38 aircraft deliveries for 2025, which is significantly lower than the contractual number of 136, indicating potential operational risks.
- There is pressure from supply-demand imbalance in the first half of 2024, although capacity moderation is expected to improve the situation.
- Southwest Airlines Co (LUV) is facing challenges in managing corporate overhead, which has grown at a faster rate than the rest of the airline.
- The company is urgently working towards implementing a $500 million cost initiative to mitigate cost inflation, indicating ongoing financial pressures.
