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Southwest Airlines March Traffic Up, RASM View Maintained

Low-cost carrier Southwest Airlines Co. LUV announced strong traffic numbers for March 2016 with revenue passenger miles (RPMs: a measure of air traffic) improving 6.2% on a year-over-year basis to 10.9 billion. Available seat miles (ASMs: a measure of capacity) climbed 6.1% to 12.9 billion.

Another important metric – load factor (% of seats filled by passengers) – improved 10 basis points (bps) to 84.6% in the month as traffic growth outpaced capacity expansion. Interestingly, this marks the highest load factor recorded by the Dallas-based airline ever, in the month of March.

In the first three months of 2016, Southwest Airlines generated RPMs of 28.4 billion (up 9.9% year over year) and ASMs of 35.3 billion (up 9.2%), leading to a load factor of 80.5% (up 40 bps).

Southwest Airlines still expects operating revenue per ASM (RASM: a key measure of unit revenue) to be flat on a year-over-year basis in the first quarter of 2016. We note that RASM in the first quarter of 2015 had been 13.67 cents.

We note that the carrier will reveal its first-quarter 2016 earnings numbers on Apr 21. Even though we expect top-line growth to be sluggish – as can be made out by the RASM forecast, the bottom line will continue to benefit from cheap oil. The company expects fuel price to be approximately $1.70 per gallon in the first quarter of 2016, representing a significant decline from the $2 per gallon recorded a year ago.

Zacks Rank

Southwest Airlines currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the airline space include Deutsche Lufthansa Aktiengesellschaft DLAKY, China Eastern Airlines Corp. Ltd. CEA and Air France-KLM SA AFLYY. All the three stocks sport a Zacks Rank #1 (Strong Buy).

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SOUTHWEST AIR (LUV): Free Stock Analysis Report
 
CHINA EASTN-ADR (CEA): Free Stock Analysis Report
 
LUFTHANSA -ADR (DLAKY): Free Stock Analysis Report
 
AIR FRANCE-ADR (AFLYY): Free Stock Analysis Report
 
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