Southwest Airlines (New York Stock Exchange:LUV) is preparing its fourth-quarter earnings report for Thursday, with operational concerns in mind for the market.
The Texas-based airline’s fourth-quarter report is expected to show a loss, with a quarterly loss of $0.11 waiting for the street That would reflect a pullback from positive reports in the previous two quarters of 2022 and the comparable period in 2021. On the other hand, revenue is expected to rise to $6.14 billion from $5.05 billion in the prior-year quarter.
The airline has beaten EPS estimates in 6 of the past 8 quarters, while beating revenue expectations in 5 of those reports. Analysts have cut EPS estimates ahead of the report, with 14 separate downward revisions recorded in the Seeking Alpha surveys.
Operational issues Land gains
Operational concerns driving much of the divisions plagued the airline during the busy holiday season and carried on into January amid broader industry woes.
According to an SEC filing released earlier this month, the airline canceled 16,700 flights over the holidays. As such, available seat miles in Q4 decreased approximately 6% compared to Q4 2019 and required a reduction in guidance. A negative pre-tax impact in the range of $725 million to $825 million and a loss of revenue of $400 million to $425 million from write-offs also shifted management and Street’s expectation to a loss for the quarter. .
The airline’s operational quagmire continued until early 2023 when a NOTAM disruption affected flights across the country. Amid these issues, Southwest (LUV) experienced by far the highest level of delays and cancellations.
The airline is still under investigation by regulators due to the unusual level of flight disruptions.
According to Seeking Alpha contributor Tim Dunn, the impact of flight cancellations is likely to leave a lasting stain on the airline’s reputation. This could have a material adverse impact on full-year guidance for the Texas-based airline.
“Deep-seated and systemic failures brought severe but expected weather to a standstill for one of the world’s largest airlines,” he warned in a recent article. “Southwest damaged important relationships with its employees, customers and regulators, all of which will take time to repair.”
An attack on the horizon?
The uncertain status of some labor agreements also looms over the stock ahead of its earnings report.
Just days before the filing, the airline’s pilots’ union set a timetable for the strike authorization date. The vote would be scheduled for early May, just before the busy summer travel season, if no agreement is reached.
“Three years in the negotiating room, very little progress, a Christmas meltdown that just defined what all of our problems are have led us to this decision,” said Southwest Airlines Pilots Association President Casey Murray.
Seeking Alpha contributor Dhierin Bechai added that a deal was likely made more difficult by recent operational problems at the airline. While he doesn’t expect a strike, he anticipates the negotiations will remain contentious.
“While I believe Southwest Airlines Co. will work out its issues and eventually come to a new labor agreement, it appears that, at least for now, Southwest Airlines management has become belittled by its customers and pilots, having abandoned the employee. -focused approach that also affects customer relationships, ”he wrote in a recent article. “Southwest Airlines Co. has an opportunity to undo that mistake now and better leverage that opportunity to create value for all stakeholders.”
More positively, the airline reached an agreement with technicians and flight instructors in January. In December, the airline also signed a new contract with its customer service union.