Southwest Airlines Signs Agreement with Sabre; Street Sees 14% Upside

Southwest Airlines Co. and Sabre Corp. have finally reached an agreement after two years of discussions that will allow the companies to continue offering clients access to low fares and improved customer service in 2021.

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Southwest Airlines Co. (LUV), which will celebrate its 50^th anniversary this year has itself a goal to offer exemplary customer service by its 58,000 employees.

Sabre (SABR) is a software and technology company that serves a wide range of travel companies including airlines, hotels, and travel agencies. Sabre connects travel suppliers with buyers from around the globe and its technology platform manages more than $260 billion worth of global travel spend annually.

As part of the agreement, Southwest Airlines flights and services will be distributed through Sabre’s travel marketplace, promoting the airline’s offerings to Sabre-connected agencies and other travel buyers.

Southwest Airilines Chief Commercial Officer, Andrew Watterson, said in a statement, “Providing our content in Sabre GDS with industry-standard capabilities has continued to be a top priority of our Customers. He added, “We are thrilled to come to terms that are mutually beneficial for our Customers and continue our long-standing partnership with Sabre.”

Southwest stock hit a multi-year low in May 2020, but improved investor sentiment and positive Covid-19 developments helped the stock recover much of its losses. However, shares still ended 2020 with a 15% decline.

Last month, Deutsche Bank analyst Michael Linenberg downgraded the stock from a Buy to a Hold but raised his price target from $48 to $50 (7% upside potential).

Linenberg believes that airline stocks are at or near fair value based on 2022 valuations, suggesting that investors have already paid for two years of earnings growth. Meanwhile, the analyst remains bullish on the sector in the long-term.

Consensus among analysts is a Moderate Buy based on 9 Buys, 3 Holds and 1 Sell. The average price target of $53.08 suggests upside potential of around 14% over the next 12 months.