Southwest Airlines (LUV, Financial) is one of the largest airline companies in US. The company has over 665 Boeing 737 aircrafts and operates over 3,400 flights a day covering over 93 destinations spread across various locations in United States. Internationally, the airliner also covers five countries. The company has all its focus on the domestic market and is leaving no stone unturned to be at the top of the ladder as the number one airliner in the US.
Quarter overview
The company recently released its fourth quarter reports for fiscal 2014 and the company ended the fiscal year on a very high note. In Q4-2014, Southwest surpassed the consensus estimates for revenue and earnings, which sends positive signals among its investors.
Consolidated revenues were up 4.5% year over year, to record $4,628 million as compared to $4,428 million in the same quarter last year. The revenue also surpassed the consensus estimate of $4,590 million. The total revenue of Southwest is contributed from three different segments mainly passenger, Freight and others. Passenger and Freight segment did record a growth while others witnessed a decline in revenue.
Segmental revenue Growth in million (Quarterly and Annually)
| Segment | Q4-2014 | Q4-2013 | Change | 2014 | 2013 | Change |
| Passenger | 4409 | 4197 | 5.1%(up) | 17,658 | 16,721 | 5.6% (up) |
| Freight | 46 | 41 | 12.2%(up) | 175 | 164 | 6.4%(up) |
| Others | 173 | 190 | 8.9%(down) | 772 | 814 | 5.2%(down) |
Earnings per share were up by 78.8% year over year, to record $0.54 as compared to $0.33 in same period last year. The earnings also exceeded the consensus estimate of $0.54/ share. The growth in the earning was mainly due to the increase in the operating income of the company.
The operating income of the company was up by 60.9% year over year, to record $621 million, as compared to $386 million in the same quarter last year. The increase in the operating income was mainly due to the revenue growth and the operating expense was in control considering the revenue generated against the operating expense. The operating expense was down by 0.9% year over year to record $4,007 million for the revenue of $4,628 million. Last year in the same quarter the operating expense was $4,042 million against the revenue of $4,428 million.
Southwest Airlines reported enormous gain in operating income for the reported quarter leveraged by lower fuel prices while Passenger revenue per available seat mile (PRASM) increased 2.6% year over year.
Journey Ahead
The aviation industry is expected to perform well in the future. Analysts expect aviation stocks to move impressively on the stock market. With these expectations, Southwest is introducing new routes and flight for the travelers to benefit its top and bottom line
Southwest is expanding on it service network in the current month (March-2015), it plans to start new service to San Jose and Costa Rica. While in June-2015, it plans to start service to Puerto Vallarta and Mexico. In the last quarter of the fiscal-2015, it plans to start its service to Belize City. So we can say Southwest is all set for a growth in revenue with new services to various destinations in the fiscal 2015.
Conclusion
Southwest holds a distinct edge in the market as it has the image of being the most profitable low cost airline in the world. Better results can be expected by the company in the future, as it can deliver a higher growth in the income through its different strategies and moves. The company is also improving its operational efficiencies by introducing various customer friendly programs and is also optimizing its network. The stocks Southwest is currently being traded at around $44.5 as I write this article. This is lower than the analyst’s lower target of $46 and the higher target of the share is expected to reach $66.0 with a mean target of $53.5. Furthermore Southwest records a forward P/E ratio of $12 and with this forward P/E investors can avail good returns in future.
