Southwest Airlines Co. (NYSE: LUV) saw a surge in its stock price on Thursday following the announcement of a $750 million stock buyback program set to commence in Q1 2025. This initiative follows the $250 million accelerated share repurchase program launched in October 2024. Upon completion of this latest buyback, $1.5 billion will remain available under the company’s $2.5 billion repurchase authorization approved in September 2024.
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Positive Q4 Projections and Strategic Initiatives Drive Growth
Southwest Airlines has revised its fourth-quarter guidance, anticipating a 5.5% to 7.0% increase in revenue per available seat mile (RASM), up from the previous projection of 3.5% to 5.5%. The company also expects economic fuel costs per gallon to range between $2.35 and $2.45, a slight adjustment from the earlier estimate of $2.25 to $2.35.
The airline forecasts a 5.5%-7.0% year-over-year increase in unit revenues, coupled with a capacity reduction of approximately 4%. This positive outlook is attributed to robust travel demand and strategic initiatives, including network optimization, capacity adjustments, enhanced marketing efforts, and advanced revenue management techniques. Strong holiday bookings and improved revenue trends further reinforce the company’s confidence in its “Southwest. Even Better.” plan, which is expected to maintain momentum into 2025.
Despite the optimistic revenue projections, Southwest Airlines maintains its projection of a ~4% decrease in available seat miles (ASMs) and an 11% to 13% increase in cost per available seat mile excluding special items (CASM-X) for the quarter.
Fleet Optimization and Q3 2024 Performance Overview
In addition to the stock buyback and revised guidance, Southwest Airlines is actively pursuing its fleet optimization strategy. The company aims to finalize an initial transaction by early 2025, encompassing aircraft sales and sale-leaseback agreements to maximize fleet value. Furthermore, Southwest plans to take delivery of approximately 20 Boeing 737-8 aircraft and retire 40 aircraft (36 Boeing 737-700s and four Boeing 737-800s) in 2024.
The company’s Q3 2024 financial results revealed a 5.3% year-over-year increase in operating revenue, reaching $6.870 billion and surpassing the consensus estimate of $6.735 billion. While adjusted earnings per share (EPS) declined to $0.11 from $0.31 in the previous year, it still exceeded the consensus estimate of $0.00.
Investment Opportunities and Stock Performance
Investors seeking exposure to Southwest Airlines can consider investing in exchange-traded funds (ETFs) such as the U.S. Global Jets ETF (NYSE: JETS) and the Themes Airlines ETF (NASDAQ: AIRL). As of Thursday’s closing, LUV shares were trading at $35.14, reflecting a 2.90% increase.
Conclusion: Southwest Airlines Poised for Continued Growth
Southwest Airlines’ recent announcements regarding its stock buyback program, positive Q4 guidance revision, and proactive fleet management strategy signal a strong outlook for the company. These initiatives, combined with robust travel demand and strategic operational adjustments, position Southwest Airlines for continued growth and success in the competitive airline industry. The company’s commitment to enhancing shareholder value and optimizing its operations underscores its dedication to long-term sustainability and profitability.
