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Southwest Airlines’ Q4 profits top expectations but fears of a price war weigh on whole sector

Profits might have been slightly better than expected thanks to a one-off tax gain, but a fall in average passenger fares has added to growing concerns of a price war among the airlines

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All of the big airline stocks including Delta and American Airlines were down on Thursday morning

Higher passenger numbers helped Southwest Airlines Co (NYSE:LUV) to just beat profit expectations in the fourth quarter of 2017.

In the three months ended December 21, the Dallas-based carrier saw unit revenue per seat rise 1.9%. The figure for that metric is expected to climb by another 1-2% in 2018 as well.

However, the stock tumbled in early on Thursday morning as it reported a 2.7% fall in average passenger fares, adding to growing fears of a price war in the sector.

Southwest shares lost 3.8% to US$59.82; although it wasn’t the only airline diving on Thursday. JetBlue Airways Corporation (NASDAQ:JBLU) Delta Air Lines Inc (NYSE:DAL) and American Airlines Group Inc (NASDAQ:AAL), among several others, were also nursing sizeable losses.

Back to Southwest and net income rose to US$1.89bn, or US$3.18 per share, largely driven by a one-time tax benefit of US$1.4bn thanks to the recent reforms.

Operating revenue also rose 3.9% to to US$5.27bn.

Excluding items, Southwest earned US$0.77 per share, slightly ahead of Wall Street expectations for US$0.77 a share.

Quick facts: Southwest Airlines

Price: 39.83 USD

NYSE:LUV
Market: NYSE
Market Cap: $23.49 billion
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