Shares of Southwest Airlines Inc. LUV, one of several airline holdings of Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. BRK.ABRK.B, nosedived over 1% in morning trading on Tuesday on the heels of reporting its first quarterly net loss in approximately 10 years.
For the quarter ending March 31, the Dallas-based airline reported a net loss of $94 million, or 18 cents in diluted loss per share, compared with net income of $387 million, or 70 cents in diluted earnings per share in the prior-year quarter.
Coronavirus outbreak wallops passenger demand in March, hurting revenues
Southwest Chairman and CEO Gary Kelly said that the coronavirus outbreak, which has sickened nearly 3 million people worldwide, resulted in a “precipitous drop” in passenger demand and bookings beginning in late February. Operating revenues of $4.2 billion tumbled 17.8%, with revenue per available seat miles declining 11.8% to 11.98 cents.
While unit revenue growth was in line with management expectations during the first two months, the load factor, which equals the ratio of revenue passenger miles to available seat miles, tanked from the March 2019 level of 85.7% to just 46.6% last month.
Company warns of revenue decline in May as demand remains pressured
Southwest warned that operating revenues are estimated to decline between 90% and 95% in both April and May as available seat miles are projected to fall over 60%. The company also estimated a load factor of approximately 6% for April and between 5% and 10% for May.
Shares of Southwest hovered around an intraday low of $28.25, close to a 52-week low and down approximately 2.95% from Monday’s close of $29.11.
While Berkshire has not released its first-quarter portfolio as the deadline is 45 days after the quarter ends, Buffett’s conglomerate trimmed its holding in Southwest and fellow airline stock Delta Air Lines Inc. DAL in early April according to GuruFocus Real-Time Picks, a Premium feature.
GuruFocus ranks Southwest’s profitability and valuation 8 out of 10 on several positive investing signs, which include a return on equity that outperforms over 90% of global competitors and price valuations close to multiyear lows. Southwest’s price-earnings ratio of 6.78 is less than Peter Lynch’s threshold of 15 and near a 10-year low of 6.64.
Other gurus with holdings in Southwest include PRIMECAP Management (Trades, Portfolio) and Jim Simons (Trades, Portfolio)’ Renaissance Technologies.
Disclosure: Author is long Southwest.
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