As people move back to normalcy, industries are making incredible revenues this year and the demand for travel has resurfaced and continues to thrive.
With the return of travel, Dallas-based flight carrier Southwest Airlines Co. is one of the major U.S. airlines expected to display lucrative profits. It is predicted to hit solid full-year profitability by 2025.
The airline is venerated for its paramountly-efficient operations, innovative logistics resolutions and low-cost pricing. The business model strategizes with a deep anchor in customer experience and service by not imposing fees on checked luggage of flyers and an open-seating policy.
Southwest Airlines Co. Stock (NYSE: LUV) became the first major airline to reinstate its quarterly dividend at its pre-pandemic levels of $0.18. The low-cost airline carrier has hit a record third-quarter revenue of $6.2 billion.
U.S AIRLINES IN THE POST-PANDEMIC WORLD:
Albeit shares are trading down, the airline segment has been taking off with heavy year-end selling. Amongst congested airports and lost baggage, airlines have shown a speedy recovery in contrast to its descent in revenue and shares during Covid-19.
Airline stock prices sync with the economic cycles and by virtue, airlines have landed in bankruptcies previously.
Productivity levels are expected to be suboptimal throughout 2023 with airlines struggling to find pilots, which was one of the major headliners of the summer flight cancellations.
IS SOUTHWEST AIRLINES STOCK WORTHY?
The legacy of Southwest Airlines has always stood out from its competitors. The flight carrier has always been a maverick – doing things differently – and continues to proliferate as one of the major titans of the carrier industry now. It’s no wonder that Southwest’s Success Story once set a benchmark in the industry.
Southwest Airlines is one among the four airlines that hold 80 percent of the U.S. Market. The present Market Cap of Southwest Airlines Co. is $21.43 billion.
Southwest’s magnificent trajectory of its financial performance has been rock solid since March. Southwest is the only major flight carrier that has never landed in the court of bankruptcy and retains its bearings as an investor favorite for having a track record of staying profitable when rivals struggled to stay buoyant.
A recent consensus by CNN Business reported that multiple polled investment analysts have shown ratings of Southwest Airlines Co. and suggest people to buy stock in the flight carrier. This consensus has been supported by Barron’s as well. The review has been steady and unchanged since December.
The world’s largest low-cost carrier is set to reinstate dividends after two years since the prohibition was lifted in September. Airlines had been banned from paying dividends or buying back shares as a relief package during the pandemic.
The quarterly dividend payout to shareholders on January 31 will amount to $428 million annually. The return of dividend has renewed confidence and strength in the sector.
Of the scarcity of pilots, Southwest expects to have a good deal on new labor contracts in the first half of 2023. Q4 revenue trends forecast an improvement in business travel into the first quarter of next year as well.
CEO Bob Jordan looks at the bright future of 2023 and declared at the company’s investor meeting. “Next year is going to be a strong year. We are seeing opportunities to return back to pre-pandemic levels of revenue.”
SOUTHWEST AIRLINES TURBULENCE:
Southwest Airlines had the second most cancellations this year after American Airlines.
It is facing tremendous negative reactions from shareholders as it canceled nearly 70 percent of its entire flight schedule on 26 December owing to the disruptive winter storms late last week, as per FlightAware which meant 2,900 canceled flights.
With this, Southwest Airlines’ shares (LUV) are down by more than 6.8 percent. Fortune reports that Citi analysts estimate that the chaos of this frigid winter would bite Southwest’s fourth-quarter earnings between 3 – 5 percent.
“We expect the airline to call out the impact of this as it performed worst in the industry and likely hurt earnings more than a ‘normal storm.” :-Analysts at Cowen Inc.
The disruption in the holiday season irked travelers forcing them to vent out their frustrations online, denting Southwest’s currently descending reputation.
The US Department of Transportation is set to investigate Southwest’s ‘unacceptable’ quantum of cancellations as competitors United Airlines, Delta Airlines and others reported only 2 percent of canceled flights.
SOUTHWEST’S FUTURISTIC OUTLOOK:
The airline is still reeling from the recent winter storms but with Southwest’s history, it’s evident that it has always ricocheted through turbulence. It boasts of catapulting the industry’s best balance sheet.
Southwest is renowned for its simplified operations and customer-friendly attitude and is the most efficiently operated airline in the industry. The airline reaffirmed its upside ASM Guidance of expecting a strong profit and revenue of the fourth quarter to surge 13 – 17 percent year after year.
Barron’s showcased that throughout Q2 and Q3 2022, Southwest’s earnings have outperformed its estimates and pursued net income gains, at full tilt.
Q2 2022: The estimated earnings were 1.17 EPS, but surprisingly the actuals were 1.30 EPS.
Q3 2022: The estimated earnings of 0.41 EPS met with the surpassed actual 0.50 EPS.
Analysts of CNN Business who offer yearly forecasts for Southwest Airlines have estimated the median target of a +41.43% increase from the previous price of 33.94.
“The balance sheet is strong and our focus continues on generating good earnings, long-term capital returns and margins, consistently.”
:~ Jordan
The reinstated dividend is a testament to Southwest’s potential for growth.
CEO Jordan has high hopes to reward the shareholders constantly. The airlines’ stock pushes a dividend yield of 2.12 percent according to Barron’s.
