Southwest shares gain the most in 9 months on Thursday, quarterly earnings surge 7% supported by unit revenue growth, higher fares

Southwest Airlines Co’s (LUV) third-quarter earnings, reported on Thursday, surged 7.2% year-on-year, as sound demand for air travel and higher fares offset the $210 million hit to operating income from cancelled flights resulting from the global grounding of Boeing 737 MAX aircraft.

Shares of Southwest Airlines closed higher for a second consecutive trading session in New York on Thursday. It has also been the sharpest daily surge since January 24th. The stock went up 5.73% ($3.05) to $56.29, after touching an intraday high at $57.04, or a price level not seen since February 19th ($58.16).

Shares of Southwest Airlines Company have risen 21.11% so far in 2019 compared with a 20.08% gain for the benchmark index, S&P 500 (SPX).

In 2018, Southwest Airlines Co’s stock went down 28.98%, thus, it underperformed the S&P 500, which registered a 6.24% loss.

The air carrier’s total operating revenue went up 1.1% year-on-year to $5.64 billion during the quarter ended on September 30th.

Southwest Airlines’ unit revenue rose 4.2% year-on-year during the third quarter, while average fares went up 1.7% year-on-year.

“We continue to control costs despite significant year-over-year unit cost pressures resulting from the MAX,” Gary Kelly, Southwest Airlines’ Chief Executive Officer, was quoted as saying by Reuters.

“Based on these trends (in customer demand and revenue) and current bookings, we are expecting another positive year-over-year unit revenue performance in fourth quarter 2019,” Kelly added.

Meanwhile, net income attributable to shareholders was reported to have risen to $659 million ($1.23 per share) during the latest quarter from $615 million ($1.08 per share) in the year-ago period.

“The operating income reduction from the MAX groundings is estimated to be $435M for the nine months ended 30-Sep-19, and we expect the damages to continue to grow into 2020,” the air carrier, which operates the largest 737 MAX fleet worldwide, said.

Analyst stock price forecast and recommendation

According to CNN Money, the 18 analysts, offering 12-month forecasts regarding Southwest Airlines’ stock price, have a median target of $58.00, with a high estimate of $70.00 and a low estimate of $49.00. The median estimate represents a 3.04% upside compared to the closing price of $56.29 on October 24th.

The same media also reported that at least 10 out of 21 surveyed investment analysts had rated Southwest Airlines’ stock as “Hold”, while 8 – as “Buy”. On the other hand, 2 analysts had recommended selling the stock.