Southwest Airlines (LUV), a leading domestic carrier in the U.S. announced discounts on its flight tickets for fall travel. The offer was made on the occasion of the company’s fortieth anniversary on June 21.
Together with its subsidiary, AirTran, the carrier has announced subsidized one-way fares at $40, $80 and $120 at the end of peak summer season.
The sale ends on June 23 and is being levied on travel between August 23 and November 16. The airfare sale comes with conditions like no travel on Fridays and Sundays and blackout dates like Labor Day. Seats remain limited and the offer might not be valid on every flight.
We believe the improving economy in the U.S. has perked up financial performances of carriers, particularly low-cost airlines such as the Southwest, AirTran and JetBlue Airways’ (JBLU), from last year and also enhanced purchasing power. As a result, passengers remain attracted to leisure travels despite higher airfares during the peak season.
Southwest remains benefited from the seasonal impact on its business. Summer travel boosted revenue growth in May by 11% from the year-ago level. Additionally, load factor also increased to 83%, reflecting higher occupancy on flights compared with the same period last year.
Currently, airline companies expect lower demand during the fall winter season. They are therefore taking resort to discounted airfares to attract passengers. However, the steeply rising fuel prices remain unfavorable for airfares, and airlines are left with limited pricing flexibility.
Recently, JetBlue discontinued its "all-you-can-jet" airfare plan that included passes for unlimited flights for a month during the fall season. Instead, the company now offers 30% discount on per round trip, reflecting the pricing constraints due to the surging fuel cost.
Considering fuel market trends, if the fuel price hovers around $3 per gallon, the airline industry could incur costs of $54 billion, which is $15 billion more than last year.
We believe that peak season revenues remains crucial for Southwest and all the other airlines to offset staggering fuel cost and derive substantial benefits by attracting more travelers on discounted tickets.
Currently we maintain our long-term Neutral recommendation on Southwest supported by the short-term (1–3 months) Zacks #3 Rank (Hold).
JETBLUE AIRWAYS (JBLU): Free Stock Analysis Report
Be the first to comment