Should You Invest in Southwest Airlines?

PHOTO CREDIT: Southwest Airlines

OVERVIEW

Southwest Airlines Company is a company based in the United States. The company operates a low-cost airline for both passenger and cargo services. The airline operates a fleet of over 730 Boeing 737 airplanes and operate to over 100 destinations in 10 countries. The airline has focus cities in Atlanta, Chicago, Oakland, Orlando, and a couple of others. The company was founded in 1967.

Why You Should?

  1. Southwest Airlines is a great reopening play in an investors portfolio. The airline industry has been crushed during the pandemic as people stop travelling and stay indoors. However, as more people get vaccinated (signaling an end to the pandemic), the travel demand will return. This will help Southwest recover from this pandemic. This will also benefit investors in the company.
  2. Travel demand across Southwest’s route network has slowly been increasing (especially during the holidays) as people go out and safely fly to their destinations. This is not happening because of vaccinations but simply because people are still willing to fly during this time. This will continue to happen as more people get vaccinated. This slow increase in travel demand will benefit the company and its investors.
  3. Southwest has been hurt because of the 737 MAX groundings before this pandemic occurred. The company had to ground 34 planes and had to delay the delivery for many more. However, the Boeing 737 MAX is returning to service on March 11th. This will continue to ramp up as well. These new planes are more efficient than the older models, which means that Southwest can lower operating costs by operating these aircraft.
  4. Southwest Airlines has had to adapt to this pandemic. One of the ways that the company did this was to lower route frequencies to areas with corporate travel and increase frequencies (or add new routes) to areas with a high demand for leisure travel. This has benefited the company and its investors during this pandemic and in the future.
  5. Southwest Airlines has an extremely good domestic exposure. Many analysts are saying that the demand for domestic travel will come back before demand for international travel does. This domestic exposure will benefit the company and its investors.

Why You Should Not?

  1. The COVID-19 pandemic has decimated the demand for the products and services that airline offers. This is because people have stayed indoors and governments have closed off borders. Higher operating costs have also hurt the company. This has hurt the company and its investors.
  2. Southwest Airlines faces tough competition from many other carriers in the United States. Some of these companies include Alaska Airlines, JetBlue, American Airlines, United Airlines, Delta, and many others. This has hurt the company in the past and might continue to hurt the company and its investors in the future.

MY OPINION

I think that Southwest Airlines is a decent long-term investment due to its position as a good reopening play, the increase of travel demand, the return of the Boeing 737 MAX, its route expansion throughout this pandemic, and a good domestic exposure. However, tough competition and impacts from the pandemic might hurt the company in the future.

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Aaditya Patel is a writer who publishes analysis on companies publicly traded on the NYSE. Follow him @the_investing787 on Instagram for summary posts.

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Aaditya Patel

Aaditya Patel

Aaditya Patel is a writer who publishes analysis on companies publicly traded on the NYSE. Follow him @the_investing787 on Instagram for summary posts.

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