Southwest Sees Higher Q1 Fuel Costs As Crude Rises (Investor's Business Daily)

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  • March 4, 2015
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Southwest Airlines (NYSE:LUV) said Wednesday that it expects fuel costs to be higher than previously expected in the first quarter as oil prices get ready for a possible rebound.
The budget carrier now sees fuel costs of $2 per gallon, 10 cents higher than its January estimate. In Q4, Southwest said it paid $2.62 per gallon, 3.8% lower than the year before.
Airlines had benefited from the drop in oil prices. In January, fuel costs for airlines were down nearly 50% vs. September as oil prices plunged 60% from a high in June.
But oil could be on its way back up. On Tuesday, Saudi Arabia raised the selling prices for its deliveries to Asia and the U.S., while Brent crude also got a boost from air strikes on oil terminals in Libya.
At home, the American Petroleum Institute said late Tuesday that U.S. crude stocks were up 2.9 million barrels last week, short of analyst estimates for a gain of 4.2 million barrels.
Southwest reaffirmed its estimates for passenger revenue to grow 6%-7% in Q1 and operating expenses per available seat mile to fall 2% vs. the year-ago quarter.
On Tuesday, Delta Air Lines (NYSE:DAL) said February consolidated passenger unit revenue (PRASM) fell 1.5% year over year as the strong dollar hurts international results. Domestic and corporate revenue helped offset some of the decline.
In January, the carrier was bullish about lower fuel prices helping boost full-year results, but it won’t see the full benefit of lower oil prices until 2016 due to its fuel hedging.
Follow Gillian Rich on Twitter: @IBD_GRich.