Southwest reports Q1 EPS 70c, consensus 61c
Reports Q1 revenue $5.15B, consensus $5.12B. Gary C. Kelly, Chairman of the Board and CEO, said, "Q1 net income was solid despite unexpected headwinds significantly impacting our performance. I am especially proud of our nearly 60,000 Employees for the commendable job under operationally difficult circumstances. 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, or MAX, unscheduled maintenance disruptions in connection with efforts to reach a Tentative Agreement, or TA, with the Aircraft Mechanics Fraternal Association, or AMFA, and severe winter weather. We estimate the impact of these flight cancellations, combined with the impact of the U.S. government shutdown and softness in leisure revenue trends, reduced our Q1 net income by approximately $150M. While our strong momentum coming into the year slowed, we drove record revenues, strong margins and cash flows, a healthy profit sharing accrual for our Employees, and significant returns for our Shareholders. All notable first quarter achievements, and testaments to our resilient brand and low-cost business model. Q1 unit revenue growth of 2.7% was our best year-over-year performance in 18 consecutive quarters, and benefited from revenue management capabilities implemented in 2018, as well as another stellar performance from our award-winning Rapid Rewards loyalty program. Looking ahead, we are expecting an even stronger year-over-year unit revenue performance in Q2. Currently, the timeline is uncertain for the MAX aircraft return to service. In the meantime, we have proactively adjusted our published flight schedules for the next several months and removed all MAX flights through August 5. Our goal is to stabilize and protect the integrity of our flight schedule, while providing dependability and reliability for Customers booking their summer travel. The MAX aircraft represents less than 5 percent of all daily flights, and the vast majority of our Customers' itineraries have been unaffected by the MAX groundings. Following a rescission of the FAA order to ground the MAX, we will return the aircraft to service once we are confident that we are in compliance with all necessary FAA directives and all necessary Pilot training has been completed. Safety is our top priority, and that commitment will never be compromised. The flight cancellations in first quarter 2019, and the resulting lower available seat mile growth, year-over-year, created significant pressure on our first quarter unit costs. Flight cancellations are expected to drive unit cost pressure for the duration of the MAX groundings. While we are adjusting our 2019 plans for the MAX groundings, our long-term financial goals remain unchanged: maintain a strong balance sheet, investment-grade credit ratings, and ample liquidity; generate robust operating and free cash flows; grow earnings, margins, and capital returns; and maintain healthy Shareholder returns. We were thrilled to launch service to Hawaii on March 17th, with an inaugural flight from Oakland to Honolulu on Oahu followed by an inaugural flight from Oakland to Kahului on Maui on April 7. Bay Area Customers were excited finally to have access to Southwest's low fares to Hawaii. The warm welcome we received from communities across Hawaii was tremendous. We are scheduled to begin service from San Jose to Honolulu on May 5, and to Maui on May 26. Our interisland service is scheduled to begin on April 28, with service between Honolulu and Maui, and between Honolulu and Kona on the island of Hawaii on May 12. More service is planned for the previously announced gateways of San Diego and Sacramento, and for Lihue on Kauai. We are very pleased with our Hawaii performance, thus far, and expect Hawaii to be the key expansion focus in 2019 and 2020."