COMPANY DESCRIPTION

Southwest Airlines operates Southwest Airlines (Southwest) and AirTran Airways (AirTran), passenger airlines that provide scheduled air transportation in the U.S. and near-international markets. Co. serves 96 destinations in 41 states, the District of Columbia, the Commonwealth of Puerto Rico, and five near-international countries including Mexico (Cancun, Mexico City, and Cabo San Lucas), Jamaica (Montego Bay), The Bahamas (Nassau), Aruba (Oranjestad), and Dominican Republic (Punta Cana). As of Dec 31 2013, the total fleet operated by Southwest and AirTran combined consisted of 680 aircraft, including 614 Boeing 737s and 66 Boeing 717s. 

 

ECONOMIC MOAT

We do not believe Southwest has an economic moat.  LUV relies on superior execution for success. The airline industry has minimal barriers to entry and nonexistent customer switching costs and intense competition. There have been hundreds of airlines since deregulation occurred in 1978.

 

OUTLOOK

Southwest Airlines ended 2014 on a good note. Southwest is continuing with its aggressive expansion plans. In addition to adding five countries to its travel list in 2014, it plans to fly to San Jose; Costa Rica; Puerto Vallarta; Mexico; and Belize, starting this year.  The stock performed well in 2014.  While we don't expect it to replicate that type of success in 2015, the potential for outperformance remains likely. The airline has two major factors in its favor right now; one is the prospect of lower jet fuel costs, and two is the extra discretionary income that consumers will have in their pockets due to lower prices at the pump. 

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STRENGTHS

  • Point-to-point service strategy increases revenues

  • Robust destination network creates a positive impact on top line

  • Strong fleet base enhances ability to deliver effective service 

WEAKNESSES

  • Lawsuits and litigations could adversely affect operating results

  • Heavy dependence on passenger revenues could increase risk

  • Dependent on single aircraft and engine supplier could impact the operations 

THREATS

  • Intense competition could negatively impact margins

  • Fluctuating fuel prices could adversely impact operation and financial condition

  • Stringent government regulation could increase operating costs 

OPPORTUNITIES

  • Growing global tourism industry could help to increase market position

  • Integration of Southwest

  • Airlines’ and AirTran’s network and operations could improve the route network

  • Favorable outlook of global air freight market could help to grow sales and profit 

The above report is for information purposes only, and is not a solicitation or offer to buy or sell any securities. Past performance is no guarantee of future performance. Neither diversification nor asset allocation ensures a profit or guarantees against loss. Before investing, investors should consider their risk tolerance, investment objectives, time horizon, available capital, and charges and expenses.  

 

The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.

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