There Is a Lot to Love About Southwest Airlines Stock

 | Dec 27, 2022 12:16AM ET

  • Southwest Airlines hit record third-quarter revenues of $6.2 billion.
  • Southwest Airlines is profitable and reinstates its dividend in January 2023.
  • The point-and-spoke routing model is key to keeping costs low versus the conventional hub-and-spoke routing model.
  • It has the largest Boeing 737 fleet in the world as it only uses one model of aircraft to keep maintenance costs down.

    • Low-cost airline carrier Southwest Airlines Company (NYSE:LUV) is the first U.S. airline to reinstate its dividend at its pre-pandemic levels of $0.18. Shares are still trading down (-18%) on the year as the whole travel and leisure sector got hit with a wave of heavy year-end selling.

    Southwest is one of the few profitable airlines that have recovered from the COVID-19 pandemic with record revenues. Capacity is expected to be down (-4.5%) over pre-pandemic levels but expects to increase to 10% above pre-pandemic levels in 2023.

    The labor shortage of pilots is expected to continue throughout 2023, resulting in cost headwinds operating at suboptimal productivity levels and inflationary cost pressures. Like major airline carriers, United Airlines Holdings (NASDAQ:UAL), Delta Air Lines (NYSE:DAL), and American Airlines Group (NASDAQ:AAL) and regional carriers like Hawaiian Holdings (NASDAQ:HA), insiders have been selling shares.

    The company stands out as it focuses on adding new routes and additional airplanes while its peers are preoccupied with managing its debt burdens from the pandemic.

    h2 Southwest Airlines Point-to-Point Routing Model/h2

    Arguably the most efficiently operated airline in the business, Southwest is a low-cost airline that operates like a regional carrier servicing over 100 destinations in 42 states, including Washington D.C. and Puerto Rico. Rather than the traditional hub and spoke routing model created by American Airlines, Southwest operates a point-to-point routing model, which results in more non-stop flights at a lower price, especially with no seating assignments.

    It only operates Boeing (NYSE:BA) 737 aircraft to keep maintenance costs down. Southwest has the world’s largest Boeing 737 fleet. The hub-and-spoke model can be efficient, but timeliness is mandatory, or connections can be missed. This is evidenced by American Airlines having the most cancellations in 2022. Point-to-point is simple but tends to incur more stops along the way, which can increase travel time. Southwest Airlines had the second most cancellation in 2022.