Southwest Airlines: Where's the Love?

Southwest Airlines (LUV) is known for cost control, internet boarding passes, check-in kiosks, low fares and actually turning a profit without having to go through bankruptcy like its larger legacy brethren.

So why has this low cost carrier been in the doldrums between $13 and $18 dollars for over two years? I frequently fly Southwest and can tell you morale has depreciated a bit like my long term investment in the company; flight delays continue to increase and oil woes continue to pester the industry.

My recent flight to Manchester, N.H. was 20 minutes late, my flight from Norfolk to Baltimore was 40 minutes late, and my flight from Phoenix to Baltimore last week was 1 hour late.

I understand there are delays with passenger traffic at an all time high for the industry. The problem is customer service and letting passengers know how long it will really take, with a smile.

Then there was the flight where peanuts were not served because a child on the flight had an allergy. I can understand that, however they didn’t even provide pretzels! On Jet Blue (JBLU) I get cookies and chips, on Continental (CTTAY) I get a great little tuna sandwich. The airline should spruce up its snacks, especially as other low cost carriers are making improvements.

With first quarter ’07 revenue over $2 billion, with net income of .12 cents a share considering the increasing cost of fuel, the stock deserves a higher PE than 23 and certainly a bit more
analyst praise.

I still believe Southwest is the best investment in the industry as they continue to lead in technology improvements, and fuel hedging tactics. The airline needs to improve its image a bit and leave the seating assignment model alone and we should see upside if oil can get below $70 for a while. Oh…and cookies would be a good move!

Disclosure: Author has a long position in LUV

LUV 1-yr chart