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Southwest Airlines Continues Hot Start To 2018

BAM Investments profile picture
BAM Investments


  • Southwest Airlines reported year-over-year February 2018 increases of 3.5% and 1.0%, respectively, in revenue passenger miles and available seat miles year over year.
  • With the continued rebounding of the U.S. economy and lower oil prices, airline activity is expected to see consistent growth which was evident by a busy 2017 holiday travel season.
  • Earnings growth will allow Southwest to improve its load factory and strategically invest in expanding capacity, which will reap the benefits of improving airline industry trends.
  • I believe Southwest is an attractive long-term growth investment given its low valuation, its ability to return value to shareholders, and the key investments it's making to execute its differentiation strategy.

Southwest Airlines (LUV) stock is an attractive investment opportunity given the airline's history of profitability. The company is focused on its differentiation strategy, which is evident in investments in its profit sharing contribution and fleet additions in 2017 as well as 2018 guidance. These investments should continue to build the Southwest brand and result in future earnings growth as the airline takes advantage of the favorable U.S. economy.

The third largest airline in the United States, Southwest Airlines, reported February’s traffic this past week. The airline, which trails American Airlines (AAL) and Delta Air Lines (DAL) in terms of enplaned passengers, fleet size and number of destinations, reported another solid month building on its promising start to 2018 with the release. Southwest surpassed February 2017 metrics by 3.5% and 1.0% in terms of revenue passenger miles (RPMs) and available seat miles (ASMs) year-over-year. After busy holiday travel months in November and December, it’s encouraging to see Southwest start the year off on the right foot and put together a better month than the competition. Refer to Southwest’s monthly RPMs and ASMs dating back to February 2017.

It’s encouraging to see Southwest has sustained growth following the difficult 2017 hurricane season that really hit September hard. Southwest has been able to return to most RPM growth rate of 2% to 4% each month since. Additionally, it’s also positive to see RPM growth staying above ASM growth, which signals an increase in the very important metric: passenger load factor. Passenger load factor is an important measurement for the airline because it represents the capacity utilization of the airline. It essentially represents the efficiency of the airline to fill seats and generate revenue. If an airline is increasing ASMs but decreasing RPMs, it shows that a lot of flights aren’t at capacity and a missed revenue opportunity. In

This article was written by

BAM Investments profile picture
Long-term investor

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in LUV over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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