On Aug 26, 2013, we maintained our Neutral recommendation on
Southwest Airlines Co
) based on the introduction of various customer friendly
programs, network expansion, fleet restructuring and capacity
management. The passenger airline holds a Zacks Rank #3
Why Kept at Neutral?
Southwest has taken a number of initiatives that are expected
to generate high revenues and reduce its cost over the next
several quarters. The company's All-New Rapid Rewards program,
increased ancillary product offerings, the introduction of
international reservation system and a new revenue management
program are expected to support its top and bottom-line
Southwest continues to optimize its combined networks with the
introduction of new national and international services across
various locations.The integration of the AirTran acquisition is
providing substantial opportunities for future growth. Southwest
expects to generate net synergies of more than $400 million by
the end of 2013.
Southwest is one of the most profitable low-cost passenger
airlines in the U.S. and the company remain focused on cost
control. Southwest is resizing its fleet structure and has taken
several efforts to improve the quality of its fleet including
interior redesigning, offering of technology-based facilities and
more entertainment options. We believe this is the right strategy
by the company to reduce non-fuel costs and improve
However, the company remains vulnerable to economic situation
and the current softness within the U.S. economy has affected the
company. We believe if the current macroeconomic situation fails
to improve, the company's might not be able to achieve its goal
of a 15% pre-tax return on the invested capital.
Further increase in non-fuel costs like salaries and wages,
airport cost, AirTran integration cost and deferred advertising
are expected to affect the company's profitability. Stiff
competition from another economic airline,
JetBlue Airways Corp.
) and heavy investments remain detrimental to the upside
potential of the stock.
For the third and fourth quarters of 2013, the Zacks Consensus
Estimates for earnings are 27 cents and 24 cents per share,
respectively. This reflects year-over-year growth of 105.38% and
Other stocks worth mentioning within this sector are
U.S. Airways Group Inc.
Republic Airways Holdings Inc.
). LCC currently carries a Zacks Rank #1 (Strong Buy) while RJET
holds a Zacks Rank #2 (Buy).
JETBLUE AIRWAYS (JBLU): Free Stock Analysis
US AIRWAYS GRP (LCC): Free Stock Analysis
SOUTHWEST AIR (LUV): Free Stock Analysis
REPUBLIC AIRWAY (RJET): Free Stock Analysis
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