Southwest Airlines - Solid Long Term Play for Investors!

Since the emergence of the Covid-19 pandemic from Dec 2019 onward, air travel industry was the hardest hit sector worldwide leading to grounding of circa 80%-90% of the aircraft fleet at the peak of the crisis. Recently, the International Air Transport Association (IATA) has highlighted that it will take at least three more years (till 2024) for international airline travel to recover from the devastation caused by covid-19 pandemic while domestic travel (the forte of Southwest Airlines) is expected to recover by 2023. During 2020, IATA further expects airlines worldwide to report collective losses of US$ 84 Bn while North American Airlines are expected to report losses of US$ 24 Bn in 2020 (for perspective, in 2019 , North American Airlines reported profits of US$ 17 Bn). However one thing that has stood out in covid-19 pandemic is that the US Govt. has shown their willingness to bailout the airline sector recognizing the strategic importance of this sector to the Country. Amidst this crisis mode, and with pricing still significantly below the levels reported before covid-19, Southwest Airlines provides the perfect recovery opportunity with an efficient operating business model focusing on low cost pricing and innovative logistics solutions. In its most recent filling to SEC, the Company has highlighted that it has continued to experience a modest improvement in leisure bookings since April and for the remainder of September 2020 and for October 2020 which shows that business environment in domestic travel is improving gradually where the Company has a market share 16.8%. For the second quarter ending June 2020, the Company reported a loss of US$ 915 Million which was mainly owing to the circa 82.9% YoY decrease in operating revenues of US$ 1 Bn. The Company has been battling to manage its costs and as a result the daily cash burn has reduced from US$ 30 Million per day in April 2020 to US$ 16 Million per day in June 2020. As of June 2020, the Company has a strong core liquidity balance of US$ 15.5 Bn.

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Southwest Airlines - Solid Long Term Play for Investors!

bullish
Since the emergence of the Covid-19 pandemic from Dec 2019 onward, air travel industry was the hardest hit sector worldwide leading to grounding of circa 80%-90% of the aircraft fleet at the peak of the crisis. Recently, the International Air Transport Association (IATA) has highlighted that it will take at least three more years (till 2024) for international airline travel to recover from the devastation caused by covid-19 pandemic while domestic travel (the forte of Southwest Airlines) is expected to recover by 2023. During 2020, IATA further expects airlines worldwide to report collective losses of US$ 84 Bn while North American Airlines are expected to report losses of US$ 24 Bn in 2020 (for perspective, in 2019 , North American Airlines reported profits of US$ 17 Bn). However one thing that has stood out in covid-19 pandemic is that the US Govt. has shown their willingness to bailout the airline sector recognizing the strategic importance of this sector to the Country. Amidst this crisis mode, and with pricing still significantly below the levels reported before covid-19, Southwest Airlines provides the perfect recovery opportunity with an efficient operating business model focusing on low cost pricing and innovative logistics solutions. In its most recent filling to SEC, the Company has highlighted that it has continued to experience a modest improvement in leisure bookings since April and for the remainder of September 2020 and for October 2020 which shows that business environment in domestic travel is improving gradually where the Company has a market share 16.8%. For the second quarter ending June 2020, the Company reported a loss of US$ 915 Million which was mainly owing to the circa 82.9% YoY decrease in operating revenues of US$ 1 Bn. The Company has been battling to manage its costs and as a result the daily cash burn has reduced from US$ 30 Million per day in April 2020 to US$ 16 Million per day in June 2020. As of June 2020, the Company has a strong core liquidity balance of US$ 15.5 Bn.
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read-time
1 min

52.00

Target Price

6/ 10

Confidence

1-2 Months

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