Southwest (LUV), an airline known for its low-cost fares and surprisingly high-end service, is having some labor troubles these days.
Sufficient troubles, in fact, to prompt Southwest to turn to federal courts for relief. Though these are some troubled times for the company, it’s likely more a “buy the dip” than “abandon ship.” I remain bullish on Southwest overall. (See Analysts’ Top Stocks on TipRanks)
Southwest’s year so far has looked like a lot of travel-related companies this year.
It led off the year generally staying in the $40 to $50 range, and most of that close to $46. A brief dip at the end of January slid prices down a peg to about $44, but that didn’t last.
For the next two months, Southwest saw closing prices over $60 per share. That likely came on the hope of renewed summer travel. That didn’t last either, however.
The company began yet another dive, closing below $50 per share in July for the first time in months.
Another period of turbulence for the company is likely to arrive soon. Southwest recently turned to a federal court to shut down a request from its pilots’ union.
That request would stop the airline from enforcing a coronavirus vaccine mandate released from the federal government. In an attempt to comply with the mandate, Southwest set a deadline — November 24 — for all employees to receive the vaccine.
The Southwest Airlines Pilots Association countered, noting that Southwest already has a lawsuit against it for violating U.S. labor laws. The vaccine mandate effective date, therefore, should be pushed back pending the results of that suit. The suit alleges that Southwest has already altered regulations without any support from the union.
Southwest, meanwhile, claims that the injunction from the pilots’ association is “extraordinary.” If granted, it would cause “substantial harm” to the company as a whole. The federal government is also Southwest’s biggest customer, which explains the “substantial harm” part nicely.
Wall Street’s Take
Wall Street consensus analysis calls Southwest a Strong Buy. Based on the projections of 17 analysts that have 12-month price targets on the company issued in the last three months, 16 consider it a Buy, while one analyst considers the stock a Hold.
The average Southwest price target exists in a narrow range. The current average price target is $66.38, with a high of $76, and a low of $55.
This Too Shall (Likely) Pass
The pilots’ association has a point. After all, Southwest has been previously spotted playing fast and loose with employment rules, the association notes. Why not settle that issue first, and then come back to what may be Southwest doing it all over again?
Yet, with the federal government being Southwest’s biggest customer, it can ill afford to tick off such an entity. Its pilots can’t afford it either. Southwest already running afoul of a conflict in Texas, where Governor Greg Abbott prohibited vaccine mandates within the state. Southwest’s interests, however, are clear here.
Southwest is also pushing back on the damage this whole issue is doing to its overall image. The recent flight cancellations hit the company hard, with stories of stranded passengers and pilots alike emerging in its wake.
Southwest has put on a full-charm offensive, setting up a complete exhibit of its corporate culture within its corporate office in Dallas. It’s also reached out with a “gesture of goodwill” to those who were hit by the cancellations.
Those “gestures” weren’t formally announced. However, reports note that the airline was sending out “LUV Vouchers,” discounts with Southwest for about $250 each.
This, too, shall likely pass. Federal courts are fairly likely to give Southwest the relief it seeks when dealing with federal mandates.
Concluding Views
Southwest has long had a history of excellent customer service. It’s not likely to lose that many customers for good over its issues.
Especially since the company’s already working to make nice with the impacted customers. Those little gestures mean a lot in customer service.
Staying bullish on Southwest is comparatively easy. There’s likely to be turmoil and unrest in the travel sector for some time to come. Southwest’s long-standing policy of pushing customer satisfaction will help reduce that impact.
Of course, if Southwest has no pilots, that may be a bigger problem. However, it’s a problem that the entire industry is likely to feel.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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