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Southwest Airlines (LUV)
NYSE:LUV
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Southwest Airlines
(NYSE:LUV)
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Rating:68Neutral
Price Target:
$35.00
▲(7.63% Upside)
Southwest Airlines' overall stock score reflects a stable financial position with strong equity and low leverage, but challenges in profitability and cash flow generation. The technical analysis suggests a positive momentum, while the valuation indicates potential overvaluation. The earnings call provides a mixed outlook with strategic initiatives offset by macroeconomic challenges.
Positive Factors
Strong Balance Sheet
A strong balance sheet with low leverage provides financial stability and flexibility, allowing Southwest to invest in growth opportunities and weather economic downturns effectively.
New Revenue Streams
The introduction of new revenue streams like checked bag fees and basic economy products can enhance profitability by diversifying income sources and capturing more customer segments.
Operational Excellence
Operational excellence, demonstrated by leading on-time performance, strengthens customer satisfaction and loyalty, supporting long-term competitive advantage in the airline industry.
Negative Factors
Macro Environment Challenges
Macroeconomic challenges, including economic downturns, can significantly impact revenue and profitability, posing risks to financial performance and strategic initiatives.
Declining Revenue Growth
Stagnant or declining revenue growth can hinder the company's ability to scale operations and invest in future growth, affecting long-term competitiveness and market position.
Negative Free Cash Flow
Negative free cash flow limits the company's ability to fund operations, invest in growth, and return capital to shareholders, potentially impacting financial health and strategic flexibility.
Southwest Airlines (LUV) vs. SPDR S&P 500 ETF (SPY)
Market Cap
$16.97B
Dividend Yield2.21%
Average Volume (3M)8.59M
Price to Earnings (P/E)48.6
Beta (1Y)1.04
Revenue Growth1.64%
EPS Growth284.24%
CountryUS
Employees71,506
SectorIndustrials
Sector Strength72
IndustryAirlines, Airports & Air Services
Share Statistics
EPS (TTM)0.43
Shares Outstanding525,187,700
10 Day Avg. Volume10,646,576
30 Day Avg. Volume8,589,181
Financial Highlights & Ratios
PEG Ratio0.00
Price to Book (P/B)1.94
Price to Sales (P/S)0.73
P/FCF Ratio-12.43
Enterprise Value/Market Cap1.12
Enterprise Value/Revenue0.69
Enterprise Value/Gross Profit4.17
Enterprise Value/Ebitda8.25
Forecast
1Y Price Target
$31.29Price Target Upside-3.78% Downside
Rating ConsensusHold
Number of Analyst Covering11
Southwest Airlines Business Overview & Revenue Model
Company DescriptionSouthwest Airlines Co. operates as a passenger airline company that provide scheduled air transportation services in the United States and near-international markets. As of December 31, 2021, the company operated a total fleet of 728 Boeing 737 aircrafts; and served 121 destinations in 42 states, the District of Columbia, and the Commonwealth of Puerto Rico, as well as 10 near-international countries, including Mexico, Jamaica, the Bahamas, Aruba, the Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos. It also provides inflight entertainment and connectivity services on Wi-Fi enabled aircrafts; and Rapid Rewards loyalty program that enables program members to earn points for dollars spent on Southwest base fares. In addition, the company offers a suite of digital platforms to support customers' travel needs, including websites and apps; and SWABIZ, an online booking tool. Further, it provides ancillary services, such as Southwest's EarlyBird Check-In, upgraded boarding, and transportation of pets and unaccompanied minors. The company was incorporated in 1967 and is headquartered in Dallas, Texas.
How the Company Makes MoneySouthwest Airlines generates revenue primarily through ticket sales, which constitute the bulk of its income. The airline employs a low-cost fare structure that encourages high volume travel while also offering various fare classes to cater to different customer segments. Additionally, Southwest earns revenue from ancillary services, such as early boarding, baggage fees, and in-flight sales, though it prides itself on having no change fees which can attract more travelers. The company also benefits from partnerships with hotels, car rental companies, and travel agencies, allowing customers to bundle services and generating additional revenue streams. The loyalty program, Rapid Rewards, also contributes to repeat business and customer retention, enhancing overall profitability.
Southwest Airlines Key Performance Indicators (KPIs)
Any
Revenue from Carried Passengers
Shows income generated from passenger travel, indicating demand for flights and pricing power in the market.
Shows income generated from passenger travel, indicating demand for flights and pricing power in the market.
Data provided by:
Main Street Data
Main Street DataSouthwest Airlines Earnings Call Summary
Earnings Call Date:Jul 23, 2025
(Q2-2025)
| % Change Since: |
Next Earnings Date:Oct 23, 2025
Earnings Call Sentiment Neutral
Southwest Airlines is experiencing some positive trends with improvements in industry demand, successful implementation of new revenue streams, and operational excellence. However, these are offset by macroeconomic challenges and initial issues with the basic economy rollout. The company's balance sheet remains strong with strategic initiatives in place to drive future growth.Q2-2025 Updates
Positive Updates
Industry Demand Improvement
The company reports signs of improvement in industry demand, with bookings showing clear signs of recovery.
Implementation of New Revenue Streams
Southwest Airlines has begun charging fees for checked bags, reintroduced expiration of flight credits, and implemented a basic economy product, which have exceeded revenue expectations.
Operational Excellence
The company led the industry in on-time performance for the first half of the year and maintained a strong completion factor, canceling fewer flights compared to peers.
Successful Strategic Partnerships
Partnerships with Chase and Icelandair have been launched successfully and are exceeding expectations, with Expedia now representing roughly 5% of passenger volume.
Strong Balance Sheet and Share Repurchase Program
The company maintains a strong investment-grade balance sheet and announced a new $2 billion share repurchase program.
Negative Updates
Macro Environment Challenges
There has been a reported $1 billion impact due to the decline in the macro environment, affecting the EBIT guide for the year.
Initial Challenges with Basic Economy Rollout
The rollout of the basic economy product faced temporary declines in bookings and required adjustments to optimize conversion rates.
Revenue Per Available Seat Mile (RASM) Decline
Second quarter RASM was down 3.1% year-over-year, and third quarter guidance predicts RASM to be down 2% to up 2%, indicating challenges in pricing power.
Company Guidance
During the Southwest Airlines Second Quarter 2025 Conference Call, the company provided detailed guidance on its financial expectations and strategic initiatives. The airline updated its full-year EBIT guidance to a range of $600 million to $800 million, revised down from a previous estimate of $1.7 billion. This adjustment reflects a nearly $1 billion impact from a challenging macroeconomic environment and a $100 million hit from increased fuel costs. Despite these headwinds, Southwest is optimistic about its future, projecting a robust EBIT expansion in 2026 driven by its $1.8 billion slate of initiatives. These initiatives include the introduction of checked bag fees, the launch of a basic economy product, and enhancements to its credit card offerings, all of which are expected to drive incremental revenue. Additionally, Southwest is implementing operational improvements, such as retrofitting aircraft for extra legroom seating and expanding its network through strategic partnerships. The airline also announced a new $2 billion share repurchase program, underscoring its confidence in its transformational plan and its ability to deliver significant shareholder value.Southwest Airlines Financial Statement Overview
Summary
Southwest Airlines maintains a stable financial position with strong equity and low leverage, but faces challenges in profitability and cash flow generation. The company demonstrates resilience with solid operating cash flow but needs to address its declining revenue growth and negative free cash flow to enhance profitability and investor returns.Income Statement
Southwest Airlines shows a stable gross profit margin at 34.1% for TTM, with a modest net profit margin of 1.4%. Revenue growth is low with a slight decline of 0.04% in the latest annual data. The EBIT margin is weak at 1.2%, reflecting operational challenges. However, the EBITDA margin of 8.5% indicates decent operating cash generation despite low profitability.69
Positive
Balance Sheet
The company's balance sheet is strong, with a low debt-to-equity ratio of 0.16 as of TTM, which suggests financial stability. The equity ratio of 47.2% denotes a solid equity base. Despite this, the return on equity is relatively low at 4.9%, indicating limited profitability on shareholders' investments.78
Positive
Cash Flow
The cash flow situation is mixed, with a negative free cash flow reflecting high capital expenditures. The operating cash flow to net income ratio is robust at 4.72, demonstrating efficient cash conversion. However, the free cash flow to net income ratio is negative, indicating challenges in generating free cash.55
Neutral
| Breakdown | TTM | Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 | Dec 2020 |
|---|---|---|---|---|---|---|
Income Statement | ||||||
| Total Revenue | 27.47B | 27.48B | 26.09B | 23.81B | 15.79B | 9.05B |
| Gross Profit | 4.57B | 4.46B | 4.22B | 4.75B | 4.12B | -1.89B |
| EBITDA | 2.31B | 2.47B | 2.39B | 2.38B | 3.03B | -2.69B |
| Net Income | 392.00M | 465.00M | 465.00M | 539.00M | 977.00M | -3.07B |
Balance Sheet | ||||||
| Total Assets | 28.71B | 33.75B | 36.49B | 35.37B | 36.32B | 34.59B |
| Cash, Cash Equivalents and Short-Term Investments | 3.84B | 8.72B | 11.47B | 12.29B | 15.50B | 13.33B |
| Total Debt | 5.34B | 8.06B | 9.20B | 9.47B | 12.28B | 12.20B |
| Total Liabilities | 20.71B | 23.40B | 25.97B | 24.68B | 25.91B | 25.71B |
| Stockholders Equity | 8.00B | 10.35B | 10.52B | 10.69B | 10.41B | 8.88B |
Cash Flow | ||||||
| Free Cash Flow | -273.00M | -1.62B | -389.00M | -156.00M | 1.81B | -1.64B |
| Operating Cash Flow | 1.85B | 462.00M | 3.16B | 3.79B | 2.32B | -1.13B |
| Investing Cash Flow | 272.00M | -261.00M | -2.93B | -3.75B | -1.26B | -16.00M |
| Financing Cash Flow | -6.79B | -1.98B | -436.00M | -3.03B | 359.00M | 9.66B |
Southwest Airlines Technical Analysis
Positive
32.52
Price Trends
31.54
Positive
32.37
Positive
31.30
Positive
Market Momentum
0.16
Negative
53.11
Neutral
51.20
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For LUV, the sentiment is Positive. The current price of 32.52 is above the 20-day moving average (MA) of 32.10, above the 50-day MA of 31.54, and above the 200-day MA of 31.30, indicating a bullish trend. The MACD of 0.16 indicates Negative momentum. The RSI at 53.11 is Neutral, neither overbought nor oversold. The STOCH value of 51.20 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for LUV.
Southwest Airlines Risk Analysis
Southwest Airlines disclosed 24 risk factors in its most recent earnings report. Southwest Airlines reported the most risks in the "Legal & Regulatory" category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 1 New Risks
1.
Conflicting federal, state, and local laws and regulations may impose additional requirements and restrictions on the Company's operations, which could increase the Company's operating costs, result in service disruptions, and increase litigation risk. Q3, 2022
Southwest Airlines Peers Comparison
UnderperformOutperform
Sector (63)
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
82 Outperform | $30.16B | 9.50 | 27.70% | ― | 4.23% | 13.13% | |
80 Outperform | $36.64B | 8.14 | 30.07% | 1.11% | 3.01% | -0.90% | |
68 Neutral | $16.97B | 48.59 | 4.30% | 2.21% | 1.64% | 284.24% | |
63 Neutral | $10.79B | 15.43 | 7.44% | 2.01% | 2.89% | -14.66% | |
62 Neutral | $5.65B | 19.91 | 7.66% | ― | 27.81% | 43.03% | |
58 Neutral | $7.54B | 14.89 | -21.27% | ― | 1.50% | ― | |
45 Neutral | $1.71B | ― | -15.12% | ― | -1.90% | 61.06% |
* Industrials Sector Average
LUV
Southwest Airlines
32.52
2.17
7.15%
ALK
Alaska Air
49.19
6.65
15.63%
DAL
Delta Air Lines
57.26
8.37
17.12%
JBLU
JetBlue Airways
4.83
-2.40
-33.20%
UAL
United Airlines Holdings
95.33
36.15
61.08%
AAL
American Airlines
11.58
0.05
0.43%
Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.