QUOTE AND NEWS
Motley Fool  Jul 15  Comment 
Southwest Airlines Co. is tired of people saying that it's just another airline.
TheStreet.com  Jul 12  Comment 
NEW YORK (TheStreet) -- Low interest rates have engendered a high level of mergers and acquisitions activity with Amazon , Apple , BHP Billiton , Google , Tyson Foods  and many others buying. But the shareholders of Amazon, Apple and the others...
SeekingAlpha  Jul 11  Comment 
By Zacks Investment Research: Southwest Airlines Company (LUV) is flying high as travel demand has picked up in the United States and it rolls out international routes for the first time. This Zacks Rank #1 (Strong Buy) is expected to grow its...
Motley Fool  Jul 9  Comment 
Although its total planes flown dipped, Southwest Airlines saw its key measures of efficiency and profitability rise in the month of June, marking a strong conclusion to the second quarter of 2014.
TheStreet.com  Jul 9  Comment 
NEW YORK (TheStreet) -- Shares of Southwest Airlines   are up 2.25% to $27.30 on Wednesday after it announced it flew 10.1 billion revenue passenger miles, or RPM's, in June, up 2.2% from 9.8 billion RPM's flown in June 2013.The carrier's load...
newratings.com  Jul 9  Comment 
WASHINGTON (dpa-AFX) - Southwest Airlines Co. (LUV) reported Wednesday operational results for the month of June, reporting year-over-year increases in traffic, capacity, and load factor from last year. The passenger revenue per available seat...
Reuters  Jul 9  Comment 
American Airlines Group Inc and Southwest Airlines Co forecast growth in an important revenue measure for the second quarter, signaling that demand for air travel is solid during the summer.
TheStreet.com  Jul 8  Comment 
NEW YORK (TheStreet) -- Southwest Airlines  fell along with other airline stocks on Tuesday after Air France reduced its full-year earnings outlook due to over-capacity. The Paris-based company, which is also one of Europe's largest airlines,...
Motley Fool  Jul 8  Comment 
Canada's second-largest airline is entering a new phase in its international growth. Could it serve as an outline for Southwest's potential international plans?
newratings.com  Jul 3  Comment 
OTTAWA (dpa-AFX) - GuestLogix Inc. (GXI.TO), a Canadian provider of onboard retail and payment technology solutions to airlines and the passenger travel industry, Thursday announced a multi-year renewal agreement with the Dallas-based Southwest...




 

Southwest Airlines (NYSE:LUV) is the largest domestic carrier by total passengers, carrying over 110 million passengers over 1 million flights. [1]

A key component of the Southwest business strategy is its low cost structure, which is designed to allow it to profitably charge low fares.[2] The company has lower unit costs, on average, than most major carriers. LUV's low cost structure is currently facilitated its reliance upon a single aircraft type, its operationally efficient point-to-point route structure, and its highly productive Employees. The use of a single aircraft type, the Boeing 737, enables Southwest to simplify scheduling, maintenance, flight operations, and training activities. The company has been profitable since 1972, an unprecedented record in the industry..[2]

Company Overview

Southwest Airlines offers short domestic-only flights with minimal service and a simple, cheap fare structure.[2] Southwest's low cost structure enables the company to offer low prices to its customers.

Business Growth[3]

  • Revenue: Revenue increased from $10.35 billion in 2009 to $12.10 billion in 2010, representing a 17% increase.
  • Net income: Net income increased from $99 million in 2009 to $459 million in 2010, representing a 78% increase in net income attributed to the recovery from the recession.

Business Segments[3]

Although Southwest officially reports only one business segment, revenues can be broken into two:

  • Passenger Revenues: 94.84% of total revenue.
  • Freight Revenues: 1% of total revenues.

The rest of the revenues are from miscellaneous sources.

Key Trends and Forces

Airline industries are more sensitive to the economy than other industries

Typically, airline companies and aircraft manufacturers are more prone to swings in revenue and equity market prices due to the release of economic indicators.[4] Consumers tend to reduce travel if personal economic conditions are suboptimal, forcing airlines to cut capacity and production. Indicators such as unemployment indices, personal income, and even home sales affect airline industries in exaggerated fashion.

Hedging of Oil Prices Leads to Significant Cost Savings

Southwest's key to financial success is its fuel hedging, where the company agrees to future fuel contracts that secure a particular price. As a result of different hedging strategies at each of the major airlines, oil fluctuations impact each of them differently. Southwest hedges more oil than any other airline, which has ensured the lowest prices on jet fuel during significant oil spikes. Southwest hedges around 70% of its fuel needs hedged, while most other major airlines have only between 20% and 30% of their fuel hedged.[5] However, the downside to hedging extensively is being subject to overpaying for oil when oil prices plummet or pursue a downtrend.

International Expansion Promotes Growth

Southwest is pursuing plans to expand its U.S. only service to include flights to Canada and Mexico.[6] By pursuing a code-sharing agreement with regional airlines, the company will sell tickets on each other's flights and share the revenue. Southwest's code-sharing agreements are lower risks because they enable the company to expand its service without adding aircraft and employees.[6] Southwest has also continued to expand domestically.

Competition

Southwest competes against many low-cost carriers or low-cost subsidiaries of larger carriers. Southwest's main low-cost carrier competitors are AirTran Holdings (AAI) and JetBlue Airways (JBLU). Its other competitors include American Airlines (AMR) (in Chicago, Texas, Los Angeles, and Miami), and United Continental Holdings (UAL). Because of its efficient cost-saving strategies, Southwest's 37-year streak of profitability is unmatched in the airline industry.[7]

AirTran Holdings (AAI): AirTran Holdings (Nasdaq:AAI) is one of America’s largest low-fare passenger airlines. The airline has managed to achieve low operating costs despite relying on a hub-and-spoke system, in which most of its flights originate and terminate at its hub in Atlanta, Georgia. Given AirTran's continued reliance on the hub and spoke system, airline management has cited other operational factors as cause for the airline having a cost structure that is among the lowest in the industry.[8]

American Airlines (AMR): AMR is the parent company of American Airlines, the second largest airline in the world based on available seat miles and revenue passenger miles On an average day, American Airlines flies approximately 3,400 flights between 250 countries. The company has been recording net losses for many years and has experiences very weak demand for air travel driven, particularly during significant economic downturns. [9]

Delta Air Lines Inc. (DAL): Delta Air Lines is the 2nd largest passenger airline in the world by available seat miles. In recent years, the company has faced financial difficulties due to price competition from discount airlines like JetBlue and Southwest. This has limited Delta's ability to raise prices to their natural supply/demand and cost reflective levels. As a result, Delta was forced into bankruptcy in September of 2005. Since exiting bankruptcy on April 30, 2007, the company has followed a revised operating strategy calling for a network shift towards more profitable international routings. [10]

JetBlue Airways (JBLU): JetBlue Airways is the 8th largest airline in the U.S. by revenue passenger miles. JetBlue differentiates itself from other airline travel companies with its low fares, made possible by low distribution and operating costs - largely due to the fact that it has the youngest fleet in all domestic airlines. JetBlue Airways specializes in cheap point-to-point flights with high levels of customer service to over 50 destinations in around 20 states, Puerto Rico, Mexico, and the Carribean.[11]

United Continental Holdings (UAL) United Continental Holdings (UAL) is a holding company and its principals are United Airlines and Continental Airlines. The merger between United Airlines and continental took place on October 1st, 2010. Due to the merger, United Continental Holdings is the largest airline in the world. The combined entity operates approximately 5,800 flights a day to more than 375 U.S. domestic and international destinations.The company's hub and spoke system allows it to transport passengers between a large number of destinations with substantially more frequent service than if each route were served directly.

US Airways Group (LCC) US Airways is a major domestic air carrier approximately operates 3,800 flights to 230 destinations across the U.S., Canada, the Caribbean, Latin America and Europe. The company’s finances suffered considerably due to reduced air travel following September 11th, forcing the airline to declare bankruptcy in 2002. However, unlike other carriers that improved and emerged stronger following Chapter 11 protection, US Airways never fully recovered. The combination of high fuel costs and tough labor negotiations forced the company into a merger with America West in 2005. While the US Airways name was maintained for brand purposes, the merger actually left America West executives and stockholders with more control over the new company.[12]



References

  1. Wikinvest SEC Files: LUV 2010 10-K, Item 6, Selected Financial Data
  2. 2.0 2.1 2.2 Wikinvest SEC Files: 2010 10-K LUV, Item 1, Business
  3. 3.0 3.1 Wikinvest SEC Files: LUV 2010 10-K, Item 8
  4. MarketWatch: Airline Stocks Hammered by Latest Economic Data, 08-19-2010
  5. "Southwest Airlines reaps benefits of fuel hedging strategy" LA Times 5/30/2008
  6. 6.0 6.1 "Southwest plans to sell travel to Mexico" CnnMoney.com 11/10/2008
  7. LUV 2009 10-K, Item 7
  8. Wikinvest Stock Summary: AirTran
  9. Wikinvest Stock Summary: AMR
  10. Wikinvest Stock Summary: DAL
  11. Wikinvest Stock Summary: JBLU
  12. Wikinvest Stock Summary: LCC
Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki