Southwest Airlines Co.Key arguments in support of the idea.
• Changing the structure of the offer.
• The shares are poised to align with their industry peers.
Investment Thesis
Southwest Airlines Co. (LUV) stands as a prominent leader among passenger airlines in the United States. LUV manages an extensive fleet, comprising 811 Boeing 737 aircraft.
Changing the structure of the offer. Beginning in 2025, the company will start selling assigned seats priced at a minimum of 15% above the base fare. This strategic move is expected to be the primary catalyst for its share growth. By the end of 2025 or early 2026, at least 30% of cabins will be equipped with these new premium seats. Even with a marginal increase in the base fare, the airline's margin is projected to improve significantly. Despite these promising prospects, the market seems determined to overlook the future benefits that Southwest Airlines can achieve with relatively minimal effort.
The shares are poised to align with their industry peers. In the past, following selloffs triggered by the carry trade effect, competitors' stocks experienced significant growth, whereas LUV demonstrated weaker performance due to ongoing proceedings with the activist fund. However, the current technical indicators appear quite favorable, and the sell-off that transpired on the day of the report release has already been recovered. We anticipate that the upward trend will persist through the end of the year. Furthermore, historical data suggests that November and December typically yield positive outcomes for this stock.
For the next two months, the price target for LUV is set at $36.50, with a recommended stop-loss at $27.90.
