Southwest Airlines Hits a 52-Week High on Low Oil Costs

Southwest Airlines Co. (LUV) – a leading low-cost U.S. airline – hit a new 52-week high of $43.19 on Dec 3, eventually closing a trifle lower at $42.32. This reflects a solid one-year return of 130%.

The overall airline industry is having a dream run buoyed by lower fuel costs. Moreover, increased air travels, especially during the holiday season, will act as a growth catalyst. In addition, the complete integration of AirTran in 2014 will provide substantial growth opportunities for Southwest Airlines.

Successful execution of strategic initiatives has helped Southwest Airlines generate record profits for the fifth consecutive quarter with airline traffic increasing 5.6% year over year to 28.52 billion in the third quarter. Management also decided to raise capacity by 6% in 2015, to meet the rising demand. Winning of slots and expansion of operations at the Reagan and LaGuardia airports will further boost its capacity and network presence.

Southwest Airlines is also progressing well on improving ancillary revenues by enhancing its services as well as introducing products to increase passenger satisfaction and experience, both on board and on ground. Recently, the company started offering Beats Music service to flyers on Wi-Fi which we believe will further enrich the in-flight entertainment quotient.

Notably, over the past one year, Southwest Airlines has reported impressive quarterly numbers. In all of the last four quarters, the company has surpassed the Zacks Consensus Estimate, with an average earnings beat of 12.22%, including a positive surprise of 3.77% in the recently concluded quarter. Over the past 90 days, the company has witnessed upward earnings estimate revisions for the current year which raised the Zacks Consensus Estimate by 22.7% to 54 cents.

Hence, we believe that such favorable factors like solid domestic demand, strong customer service and revamping its fleet structure will continue to drive the Southwest Airlines stock, going forward.

Other Stocks to Consider

Southwest Airlines currently sports a Zacks Rank #1 (Strong Buy). Some other airline stocks which warrant a look are Delta Air Lines, Inc. (DAL), Hawaiian Holdings Inc. (HA) and American Airlines Group Inc. (AAL). All these stocks have the same Zacks Rank as Southwest Airlines.