On May 16, 2014, we issued an updated research report on
Southwest Airlines Co.
). The carrier reported a steady first quarter performance with the
bottom line beating the Zacks Consensus Estimate, while revenues
met the same.
We believe Southwest Airlines is poised to benefit from several
strategies adopted like fleet restructuring, introduction of
international services, capacity management, the Airtran
integration and slot wins in LaGuardia and Reagan National
airports, which should boost revenues and reduce expenses over the
next three years. Southwest currently carries a Zacks Rank #1
Southwest Airlines is expected to report strong revenues and
earnings for full-year 2014 based on a stable outlook for the
economy, favorable fuel prices, the forthcoming launch of
international services, a stable Rapid Reward Program, fleet
modernization efforts and pet fees.
Moreover, the AirTran acquisition is posing substantial
opportunities for future revenue growth. Southwest Airlines and
AirTran Airways have fully interconnected their networks, and the
integration is progressing well. We expect the full integration of
AirTran to boost Southwest Airlines' operational performance will,
in turn, be accretive to the company's earnings.
Southwest Airlines is set to start operations in the international
market from the third quarter of 2014 with flights to the
Caribbean, Central America, Latin America and Mexican markets, in a
bid to boost its network coverage. Further, after winning slots in
the LaGuardia and Reagan (DCA) airports, the carrier has decided to
extend daily departures from DCA to 44 from the current 17, thus
increasing its operations from the airport more than 2.5 times.
These efforts are expected to add significantly to the company's
top line in the near term.
Furthermore, the airline's board of directors recently approved a
$1 billion share buyback program along with a 50% hike in its
current 4 cent-quarterly dividend to 6 cents per share. This action
depicts the company's commitment to enhance its shareholders'
However, a highly competitive environment and regulations imposed
by the federal authority pose major impediments to its performance.
Further, an expected increase in non-fuel costs and high
integration cost can affect Southwest Airlines' bottom line going
Key Pick from the Sector
Some other stocks worth considering within this sector are
Alaska Air Group Inc.
American Airlines Group Inc.
Delta Airlines Inc.
). All the stocks currently carry a Zacks Rank #1 (Strong Buy).
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