Southwest Airlines (LUV) reported better-than-expected results in the third quarter. The airline’s adjusted earnings declined by 60.5% year-over-year to $0.15 per share. However, this was still above analysts’ expectations of $0.06 per share.
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Furthermore, the company posted record third-quarter operating revenues of $6.9 billion, an increase of 5.3% year-over-year. This surpassed consensus estimates of $6.77 billion.
Southwest Reaches Agreement with Elliott
In a related development, Southwest announced that it had reached an agreement with activist investor, Elliott Management, effectively avoiding a proxy fight. As a part of this agreement, six new directors will join Southwest’s board, effective from November 1. Additionally, the retirement of executive chairman Gary Kelly will be accelerated and will go into effect from November 1. Kelly will be Chairman Emeritus following his departure from the Board. Notably, the deal ensures that CEO Bob Jordan will remain in his role, providing stability at the top amid the changes.
Under the settlement, five of Elliott’s board nominees, along with former Chevron (CVX) CFO Pierre Breber, will take seats on the board. In addition, the board will appoint a new chairman to replace Kelly. According to a CNBC report, the deal is the largest board overhaul Elliott has achieved in a U.S. corporate battle.
LUV Issues Q4 Outlook
Looking ahead, the company expects its fourth-quarter operating revenue per available seat mile (unit revenues) to increase in the range of 3.5% to 5.5% year-over-year. Meanwhile, LUV anticipates that its seating capacity (available seat miles) to reduce by 4% year-over-year. However, the company estimates its operating expenses per available seat mile, excluding fuel expenses, to rise between 11% and 13% year-over-year.
Besides grappling with rising operating expenses, LUV has been significantly impacted by delays in Boeing’s (BA) jet deliveries. However, the company continues to expect 20 new jets from Boeing by the end of the year.
Is LUV a Good Buy Now?
Analysts remain sidelined about LUV stock, with a Hold consensus rating based on two Buys and nine Holds. Over the past year, LUV has increased by more than 30%, and the average LUV price target of $29.25 implies a downside potential of 4.8% from current levels. These analyst ratings are likely to change following LUV’s results today.
