March 15, 2019 / 12:44 PM / 8 months ago

BUZZ-Southwest: Citi, Morningstar cut EPS forecasts on 737 MAX groundings

** Citigroup cut its 2019, 2020 EPS forecasts for Southwest Airlines given U.S. grounding all Boeing 737 MAX planes and that the carrier’s out-of-service aircraft for mechanical issues is more than double normal levels

** Morningstar tempers its available seat mile and revenue passenger mile growth forecasts, saying the groundings and Boeing suspending deliveries would hit Southwest the most among North American carriers since the upcoming MAX8 deliveries are the focal point of its Hawaiian expansion

** Southwest, the world’s largest operator of the 737 MAX, says “we don’t have any information to share on” a forecast cut; it has canceled 39 MAX flights

** Citi estimates the grounded MAXs are about 4 pct of LUV’s fleet, leaving it facing a plane shortage and while passengers can be reaccommodated, that eats into possible seat sales at close-in peak prices

** With the out-of-service aircraft already leading to cancellations, Southwest could face higher customer compensation expense on cancellations due to the groundings, Citi says

** Morningstar says LUV could be forced to fly costlier planes on Hawaiian routes (set to start on March 17) and slash fares to stimulate traffic growth in mainland markets

** Citi estimates LUV’s Q1 RASM (unit rev) rising 2.5 pct, less than co’s guide of 3-4 pct, and non-fuel costs to go up 7 pct vs LUV’s 6-pct guide

** Citi though believes both issues are temporary, maintaining its ‘buy’ rating and keeping its $64 PT

** LUV has fallen 1.2 pct since the Ethiopian Airlines crash on Sunday, while American Airlines is up 0.7 pct

** WestJet Airlines is down 3.2 pct, less than the 3.8 pct drop in Air Canada, which on Friday became the first major airline to suspend guidance due to the groundings (Reporting by Savio D’Souza)

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