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Southwest Airlines Co LUV

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Morningstar’s Analysis

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Operational Difficulties Mar an Improving Operating Environment for Southwest in the Third Quarter

Burkett Huey, CFA Equity Analyst

Analyst Note

| Burkett Huey, CFA |

No-moat-rated Southwest reported operational difficulties in an improving travel market during the third quarter, as it strained to grow to meet demand. Delta variant caseloads slowed traffic growth and made traffic less predictable, but the virus did not meaningfully depress traffic. Revenue of $4.7 billion and adjusted loss per share of $0.23 beat FactSet consensus by 2.1% and 15.8%, respectively. We are reducing our fair value estimate for Southwest to $63 per share from $65 as we account for increased landing fee inflation and a slightly slower revenue outlook.

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Company Profile

Business Description

Southwest Airlines is the largest domestic carrier in the United States, as measured by the number of originating passengers boarded. Southwest operates over 700 aircraft in an all-Boeing 737 fleet. Despite expanding into longer routes and business travel, the airline still specializes in short-haul leisure flights, using a point-to-point network. Southwest operates a low-cost carrier business model.

P.O. Box 36611
Dallas, TX, 75235-1611
T +1 214 792-4000
Sector Industrials
Industry Airlines
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Cyclical
Employees 53,984