Southwest Airlines Co.LUV

Morningstar Rating

Stock Research and Analysis

by Basili Alukos, CPA

Despite being the lone stalwart in an industry with poor structural characteristics, we think Southwest will face challenges increasing revenue without a large-scale capacity expansion.

The U.S. domestic airline industry has seen a plethora of new Read more

Bulls Say

Preying on weaker competitors, Southwest has used the current downtown to expand service offerings to Minneapolis/St. Paul, New York LaGuardia, and Boston Logan airports. If successful, these new markets could provide amble growth opportunities when the economy rebounds.

More than 80% of Southwest's flights were on time, and the firm canceled less than 1% of its flights during the last two years, ranking it among the best in the industry. We think this impressive performance creates customer loyalty and should ultimately lead to future revenue growth. Read more

Bears Say

Approximately 82% of Southwest's workforce operates under union contracts that are currently amendable, which could put downward pressure on operating margins.

Southwest is solely a domestic carrier and has roughly 40% of its capacity concentrated in the western United States, leaving the firm more susceptible to a U.S. geographic slowdown than many of its competitors.

As the average tenure of employees at Southwest has grown, labor costs per available seat mile have risen, and eventually productivity improvements may not keep pace. Read more

Strategy

Southwest's main priority is containing costs in order to preserve its low-cost structure. With this mindset, Southwest looks to expand into new domestic markets, albeit less slowly, given the uncertainty Read more

Management

CEO Gary Kelly began working for Southwest in 1986 as the firm's controller. Kelly worked as both the firm's principal accounting officer and CFO prior to earning his CEO title in 2004. Laura Wright, also a Southwest veteran, accompanies Kelly as Southwest's Read more

Profile

Texas-based Southwest Airlines is the largest carrier in the United States measured by the number of originating passengers boarded and scheduled domestic departures. The Read more

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