In This Article:
Southwest Airlines (NYSE:LUV) just wrapped up 2024 with a solid earnings beat, proving that demand for air travel isn't slowing down anytime soon. Adjusted EPS came in at $0.56, crushing analyst expectations by over 21%, while quarterly revenue hit a record $6.9 billion. The airline's sharp revenue strategies and strong holiday travel demand helped push unit revenue (RASM) up 8% year-over-year. But it wasn't all smooth flyingrising labor costs and operational expenses kept pressure on the bottom line, with CASM-X climbing 11.1%. Still, Southwest doubled down on investor confidence, launching a $750 million accelerated share buyback to return more cash to shareholders.
Looking ahead, Southwest is eyeing a 5% to 7% bump in RASM for Q1 2025, thanks to capacity adjustments and continued demand strength. The airline is also modernizing its fleet, bringing in fuel-efficient Boeing 737-8s while retiring 51 older planes to improve efficiency. But challenges remain. Supply chain bottlenecks could delay aircraft deliveries, and cost headwindsespecially from labor contractswill take time to ease. Management is pushing for a low-single-digit CASM-X by the end of 2025, but in the near term, cost pressures will keep margins tight.
Despite the hurdles, Southwest is playing the long game. With $9.7 billion in liquidity, a disciplined cost-cutting plan, and a clear focus on revenue optimization, the airline is positioning itself to ride out near-term turbulence. Investors will be watching to see if Southwest can balance growth with cost control, especially as the industry faces macroeconomic uncertainties. If the airline can execute on its Southwest Even Better strategy while keeping expenses in check, 2025 could be a year of steady altitude gains.
This article first appeared on GuruFocus.