Earnings Preview: Southwest Airlines

Southwest Airlines (LUV) is expected to report Q3 earnings before market open Thursday, October 16, with a conference call scheduled for 11:30 am ET.

Guidance

Analysts are looking for EPS of 7c on revenue of $2.84B. The consensus range for EPS is (4c) to 16c, and $2.66B to $2.93B for revenue, according to First Call. The airlines announced when it reported its Q2 results it expected Q3 fuel cost per gallon to be in $2.50 range, and it planned to grow YoY ASM capacity to no more than 4% in 2008. Southwest Airlines also stated it may not add capacity in 2009, and is evaluating fleet plans.

Analyst Views

JP Morgan upgraded much of the airline sector on August 12, but the firm downgraded Southwest to Underweight from Neutral. The firm said airline equities do not reflect the recent drop in fuel prices and the improvement in non-fuel fundamentals. JP Morgan downgraded Southwest Airlines citing relative valuation. Southwest was also downgraded by Morgan Stanley on September 15. The firm downgraded the airline to Underweight from Equal Weight.