Southwest Air Tops Q3 Estimates, American Airlines Upgrades 2024 Outlook

Southwest Airlines and American Airlines Post Mixed Q3 Earnings with Optimistic Outlooks

Southwest Airlines reported a decline in third-quarter profits, with net income falling 65% year-over-year to $67 million, or 11 cents per share. However, adjusted earnings of 15 cents per share surpassed Wall Street’s expectation of zero cents. Revenue rose over 5% to $6.87 billion, beating the forecast of $6.74 billion. Despite rising costs, excluding fuel, by up to 13%, the airline anticipates unit revenue growth of 3.5% to 5.5% in Q4, driven by strong holiday bookings and steady travel demand.

In an effort to boost profitability, Southwest announced a $2.5 billion stock buyback plan, starting with a $250 million repurchase through an accelerated program. Additionally, the carrier is cutting underperforming routes and overhauling its seating policy to offer extra legroom for a premium. This is part of a broader strategy that includes plans to add $4 billion in earnings by 2027. Southwest’s stock rose more than 3% in premarket trading following the results.

American Airlines raised its full-year profit forecast, projecting adjusted earnings of up to $1.60 per share, exceeding its previous estimate of $1.30. This improvement follows a strategic shift in the company’s sales approach after a failed booking strategy led to the firing of its chief commercial officer earlier this year. American expects Q4 earnings between 25 and 50 cents per share, surpassing analysts’ expectations of 29 cents. For Q3, the airline reported adjusted earnings of 30 cents per share, doubling expectations of 16 cents, with revenue reaching $13.65 billion.

CEO Robert Isom expressed optimism about the company’s revamped sales and distribution strategy, aimed at winning back business travelers. Improved relations with corporate clients and travel agencies should enhance long-term revenue performance.

Additional Earnings Highlights:

• UPS: Beat Q3 profit expectations with adjusted earnings per share of $1.76, above the $1.63 estimate. UPS raised its operating margin forecast to 9.6% and reported consolidated revenue of $22.25 billion, slightly ahead of estimates. The company has seen U.S. volume growth and secured a new USPS air cargo contract.
• Honeywell: Reported mixed Q3 results with earnings per share of $2.58, beating the estimate of $2.50, but revenue fell short at $9.73 billion, missing forecasts of $9.9 billion. Shares dropped 3% due to the miss in aerospace and automation revenue.

Short-Term Outlook

The airline sector is showing resilience in the face of cost pressures and strategic challenges, with Southwest and American Airlines both pointing to strong travel demand and operational adjustments as reasons for optimism heading into 2024. This suggests a bullish outlook for the near term, particularly as airlines scale back unprofitable capacity.