Southwest Airlines Co (NYSE:LUV) is reporting first-quarter earnings before the market opens on Thursday. This stock has returned nearly 225% since 2013 for us, so we’re keenly interested in what happens when the airline reports.
We’ve written a fair amount about LUV recently but there are two things to bear in mind regarding this stock, but neither indicate this stock is rolling over.
First, at current prices is slightly more expensive than other sector leaders, like Delta Air Lines, Inc. (NYSE:DAL). But LUV is just ingesting its merger with AirTran and it’s now starting service to Latin America, with its first approved route from Houston to Mexico City.
Where DAL has been working hard to grow its market share domestically at LUV’s expense, the AirTran deal strengthens LUV’s East Coast exposure and adds Latin America and the Caribbean to its destinations, directly taking on DAL in international markets.
In March LUV reported 6.7% growth in revenue passenger miles (RPMs) and year-over-year RPMs are up 7.1%. LUV is adding nine new daily non-stop flights for select routes, so it’s not stalling.
According to recent U.S. Department of Transportation numbers, DAL and LUV are neck-and-neck in market share (15.9% to 16% respectively). These new service areas and flight frequency will keep LUV the one to beat.
Second, there’s a lot priced into LUV already. Some airline stocks might be cheaper and have more room to surprise where LUV has more room to disappoint.
But that’s only a short-term issue. LUV is making the right moves that are working now and for the long term.
Not only is it still the most “fun” airline to fly but it’s now enriching that experience by replacing its aging fleet. Some of this may be swapping in newer AirTran aircraft for now, but it will be modernizing the fleet. That may cost some money, but it will also save on maintenance. And given its industry-winning margins, this is an investment that will pay off as LUV expands its service.
Both DAL and LUV show that well-run airlines can be profitable and still provide good levels of service.
There’s no doubt that both are impressive companies, but LUV still looks more attractive here because it is showing it can grow in its established market and has smart plans to expand into a potentially lucrative space with convenient and cost-effective airport access.
If the stock sells offs on some surprise, it will certainly only be temporary. At this point, LUV is going to hang around as long as it continues to move down its current glide path.
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Source: southwest - Google News http://ift.tt/1HX7E4N
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