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Southwest Airlines Co. (NYSE: $LUV) Raises Fuel Cost Forecast for Q4

Southwest Airlines Co

Southwest Airlines Co. (NYSE: $LUV) experienced a 3.8% decline on December 13, closing at $29.15, driven by Southwest’s less favorable fuel price guidance for the fourth quarter. The airline raised its fourth-quarter economic fuel costs per gallon projection to a range of $3.00 to $3.10, compared to the previous guidance of $2.90 to $3.00.

Despite this setback, LUV maintains its expectation of a 16-19% decrease in cost per available seat mile (CASM, excluding fuel, oil, profit-sharing expenses, and special items) for the fourth quarter, along with an anticipated interest expense of $63 million in the same period.

On a positive note, Southwest Airlines is experiencing strong air travel demand and favorable yields. The company achieved record revenues during the Thanksgiving holiday period and surpassed expectations with close-in bookings, including managed business bookings, in November and December.

Buoyed by this improvement, Southwest Airlines now anticipates fourth-quarter unit revenues to be at the higher end of the previous guidance range. LUV still expects record operating revenues and passengers in the fourth quarter.

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The revised outlook for revenue per available seat mile (RASM) in the December quarter is a decline of 9-10%, narrowed from the earlier range of 9-11%. Additionally, fourth-quarter available seat miles (ASMs or capacity) are expected to improve by 21% compared to the year-ago period.

The strong Thanksgiving period performance has provided a much-needed boost to Southwest Airlines’ stock, countering challenges like high labor and fuel costs and a slowdown in domestic air travel demand.

Looking ahead to 2023, Southwest maintains its expectation for capacity to increase by 14-15% from the 2022 level. The airline also anticipates year-over-year growth of 10-12% for first-quarter 2024 capacity and 6-8% growth for full-year 2024 capacity.

Management projects future capacity growth, beyond 2024, to be in the low to mid-single-digit range, a slight adjustment from the previously stated mid-single-digit rise. This change aligns with Southwest’s long-term financial goal of achieving an after-tax return on invested capital well above the weighted average cost of capital.

About Southwest Airlines Co

Southwest Airlines Co. functions as a passenger airline, delivering scheduled air transportation services primarily in the United States and neighboring international markets. As of December 31, 2022, the company operated an extensive fleet of 770 Boeing 737 aircraft and served 121 destinations spanning 42 states, the District of Columbia, and the Commonwealth of Puerto Rico.

Additionally, Southwest Airlines extended its reach to ten near-international countries, including Mexico, Jamaica, the Bahamas, Aruba, the Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos.

The airline enhances the passenger experience by offering an inflight entertainment portal and connectivity services on Wi-Fi-enabled aircraft. Southwest’s Rapid Rewards loyalty program enables members to accumulate points based on dollars spent on the airline’s base fares. Complementing its services, the company provides digital platforms such as websites and apps, including SWABIZ, an online booking tool.

Founded in 1967, Southwest Airlines is headquartered in Dallas, Texas. The company goes beyond standard air travel services, offering ancillary services like Southwest’s EarlyBird Check-In, upgraded boarding options, and the transportation of pets and unaccompanied minors.

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