Dallas, Texas-based Southwest Airlines Co. (LUV) posted a rise in traffic for Dec 2013. The traffic – measured in revenue passenger miles (RPMs) – came in at 8.97 billion, up 9.8% from 8.17 billion recorded in the comparable month a year ago. On a year-over-year basis, consolidated capacity (or available seat miles/ASMs) increased 3.4% to 10.84 billion. The load factor or percentage of seats filled by passengers increased to 82.8% from 78.0% in Dec 2012. The market reacted positively to the news as the stock gained 3.33% on Wednesday on Nasdaq.
In 2013, Southwest generated RPMs of 104.35 billion (up 1.4% year over year) and ASMs of 130.34 billion (up 1.7% year over year). Load factor, however, moved down to 80.1%, reflecting a year-over-year decline of 20 basis points.
The substantial increase in PRASM (passenger revenue per available seat mile) was the most notable incident of the month. For Dec 2013, PRASM is estimated to have increased in the 14–15% range from Dec 2012.
Southwest Airlines acquired 12 pairs of slots at the LaGuarida (LGA) airport in New York from U.S. Airways Group. These were as part of U.S. Airways Group’s merger with American Airlines to form American Airlines Group Inc. (AAL).
Southwest Airlines aims to initiate services at LGA from May 2014. The company is also looking to win slots at Washington Regan National Airport (DCA), which is to be divested by American Airlines and U.S. Airways.
Southwest Airlines’ slot win at New York provides it with scope for expansion in the city and gives it a competitive edge over JetBlue Airways Corp. (JBLU) and Delta Air Lines Inc. (DAL).
With its cost-efficient business model, the company targets to expand its network through the integration of AirTran aircraft and the addition of domestic and international destinations. To accommodate international flights to the Caribbean, Mexico and the northern part of Latin America, the company is building a new facility at the William. P. Hobby international airport in Houston.
We believe these initiatives along with the winning of slots at LGA are expected to create tailwinds for the company going forward. Southwest Airlines currently holds a Zacks Rank #1 (Strong Buy).
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