Southwest Airlines (LUV) AI Stock Analysis

• Market Cap: $16.39B
• Dividend Yield: 2.52%
• Average Volume (3M): 15.53M
• Price to Earnings (P/E): 37.8
• Beta (1Y): 1.00
• Revenue Growth: 5.34%
• EPS Growth: -6.20%
• Country: US
• Employees: 72,450
• Sector: Industrials
• Sector Strength: 61
• Industry: Airlines, Airports & Air Services
• EPS (TTM): 0.71
• Shares Outstanding: 573,913,640
• 10 Day Avg. Volume: 16,578,060
• 30 Day Avg. Volume: 15,525,112
• PEG Ratio: N/A
• Price to Book (P/B): N/A
• Price to Sales (P/S): 0.75
• Price to Cash Flow (P/CF): 10.80
• P/FCF Ratio: 0.00
• Enterprise Value/Market Cap: N/A
• Enterprise Value/Revenue: N/A
• Enterprise Value/Gross Profit: N/A
• Enterprise Value/Ebitda: N/A
• 1Y Price Target: $31.13
• Price Target Upside: 20.71% Upside
• Rating Consensus: Hold
• Number of Analyst Covering: 16

Southwest Airlines' overall score reflects a mix of strengths and challenges. Positive factors include revenue growth, improved cost management, and strategic initiatives. However, concerns about cash flow, high valuation, and potential operational risks from corporate changes temper the outlook.

Positive Factors

Cost Management

LUV's move to layoff 2,200 employees clearly shows cost actions can also be a meaningful support for improving margin.

Revenue Enhancement

LUV's recent move to charge for bags clearly shows they are taking a 'whatever it takes' approach to drive financial improvement.

Stock Buyback

Southwest Airlines is accelerating its $2.5 billion share repurchase program, with completion expected by July.

Negative Factors

Consumer Demand

Web traffic to US-based airlines has decreased by 10% year-over-year, potentially indicating a decline in air travel demand.

Macro Economic Conditions

The state of the airline industry is more muted than hoped, and near-term juice has been suppressed by uncertainty in the economy.

Revenue Expectations

Southwest Airlines lowered its Q1 RASM due to weaker macroeconomic conditions and softer bookings.

Southwest Airlines Business Overview & Revenue Model

Company Description

Southwest Airlines Co. operates as a passenger airline company that provide scheduled air transportation services in the United States and near-international markets. As of December 31, 2021, the company operated a total fleet of 728 Boeing 737 aircrafts; and served 121 destinations in 42 states, the District of Columbia, and the Commonwealth of Puerto Rico, as well as 10 near-international countries, including Mexico, Jamaica, the Bahamas, Aruba, the Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos. It also provides inflight entertainment and connectivity services on Wi-Fi enabled aircrafts; and Rapid Rewards loyalty program that enables program members to earn points for dollars spent on Southwest base fares. In addition, the company offers a suite of digital platforms to support customers' travel needs, including websites and apps; and SWABIZ, an online booking tool. Further, it provides ancillary services, such as Southwest's EarlyBird Check-In, upgraded boarding, and transportation of pets and unaccompanied minors. The company was incorporated in 1967 and is headquartered in Dallas, Texas.

How the Company Makes Money

Southwest Airlines makes money primarily through the sale of passenger tickets for air travel, which constitutes the majority of its revenue. The company employs a low-cost carrier model, focusing on high-frequency, short-haul routes to maximize aircraft utilization and minimize costs. Ancillary services such as fees for additional services, including early check-in, upgraded boarding, and other in-flight offerings, also contribute to its revenue streams. Southwest's rapid turnaround times and focus on operational efficiency help keep costs low and maintain profitability. The company also benefits from strategic partnerships with other travel-related businesses, loyalty programs, and co-branded credit cards, which provide additional revenue through commissions and fees.

Southwest Airlines Financial Statement Overview

Summary

Southwest Airlines demonstrates solid revenue growth and improved cost management, enhancing profitability and operational efficiency. The balance sheet reflects a healthier leverage position with reduced debt levels, although ROE indicates room for profitability growth. Cash flow management is an area of concern as operating cash flow ratios have declined, and free cash flow remains negative, warranting attention for sustainable cash management.

Income Statement

Southwest Airlines shows positive momentum in revenue with an 5.34% growth in TTM compared to 2023. Gross Profit Margin improved to 24.40% from 16.19% last year, indicating better cost management. While the Net Profit Margin slightly decreased to 1.69% from 1.78%, the company still demonstrates resilience. EBIT and EBITDA margins also improved, reflecting operational efficiency; EBIT Margin rose to 1.47% from 0.86% in 2023.

Balance Sheet

The company's Debt-to-Equity Ratio improved to 0.29 from 0.88, showcasing reduced leverage and potential financial stability. The Equity Ratio stands at 47.36%, indicating a solid equity position. Return on Equity, however, slightly underperformed at 4.48% compared to 4.42% in 2023, suggesting room for profitability enhancement.

Cash Flow

Operating Cash Flow to Net Income Ratio declined significantly to 0.99 from 6.80, highlighting potential cash flow challenges. Free Cash Flow remains negative at -$1.62B, though the Free Cash Flow to Net Income Ratio is -3.49. The Free Cash Flow Growth Rate is not applicable due to negative figures.

Breakdown
Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Income Statement		Total Revenue
27.48B	26.09B	23.81B	15.79B	9.05B
	Gross Profit
4.46B	4.22B	4.75B	4.12B	-1.89B
	EBIT
321.00M	224.00M	1.02B	1.72B	-3.82B
	EBITDA
2.50B	2.39B	2.38B	3.03B	-2.70B
	Net Income Common Stockholders
465.00M	465.00M	539.00M	977.00M	-3.07B
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
8.72B	11.47B	12.29B	15.50B	13.33B
	Total Assets
33.75B	36.49B	35.37B	36.32B	34.59B
	Total Debt
8.06B	9.23B	9.43B	12.28B	12.20B
	Net Debt
549.00M	-59.00M	-61.00M	-199.00M	1.14B
	Total Liabilities
23.40B	25.97B	24.68B	25.91B	25.71B
	Stockholders Equity
10.35B	10.52B	10.69B	10.41B	8.88B
Cash Flow		Free Cash Flow
-1.62B	-389.00M	-156.00M	1.81B	-1.64B
	Operating Cash Flow
462.00M	3.16B	3.79B	2.32B	-1.13B
	Investing Cash Flow
-261.00M	-2.93B	-3.75B	-1.26B	-16.00M
	Financing Cash Flow
-1.98B	-436.00M	-3.03B	359.00M	9.66B

Southwest Airlines Technical Analysis

• Technical Analysis Sentiment: Negative
• Last Price: 25.79
• 50DMA: Negative
• 100DMA: Negative
• 200DMA: Negative
• MACD: Positive
• RSI: Neutral
• STOCH: Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For LUV, the sentiment is Negative. The current price of 25.79 is below the 20-day moving average (MA) of 31.35, below the 50-day MA of 30.61, and below the 200-day MA of 29.96, indicating a bearish trend. The MACD of 0.76 indicates Positive momentum. The RSI at 45.42 is Neutral, neither overbought nor oversold. The STOCH value of 34.20 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for LUV.

Southwest Airlines Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
UAL	77 Outperform	$23.19B	6.65	28.63%	―	6.23%	20.08%
DAL	75 Outperform	$28.60B	7.85	27.52%	1.24%	4.91%	-27.21%
RYAAY	73 Outperform	$22.08B	13.37	21.21%	1.91%	5.39%	-15.92%
LUV	64 Neutral	$16.39B	37.85	4.50%	2.52%	5.34%	-6.20%
Sector *	62 Neutral	$7.68B	13.06	3.21%	3.34%	3.62%	-14.40%
AAL	52 Neutral	$7.31B	8.58	-21.27%	―	2.70%	2.20%
JBLU	42 Neutral	$1.52B	―	-26.60%	―	-3.50%	-148.99%

Southwest Airlines Corporate Events

Southwest Airlines Appoints New Principal Accounting Officer

On March 28, 2025, Southwest Airlines’ Board of Directors appointed J. Ryan Martinez as the new principal accounting officer, effective April 1, 2025, succeeding Tammy Romo. Martinez, who has held various roles within the company, including Senior Vice President Finance & Controller, brings extensive experience in investor relations to his new position.

Southwest Airlines Revises Q1 2025 Financial Guidance

On March 11, 2025, Southwest Airlines updated its financial guidance for the first quarter of 2025 at the J.P. Morgan Industrials Conference. The company now expects a smaller increase in operating revenue per available seat mile (RASM) and a slight decrease in capacity compared to previous estimates. This revision is attributed to factors such as higher-than-expected completion rates, reduced government travel, and impacts from California wildfires. Additionally, Southwest anticipates a lower increase in operating expenses per available seat mile (CASM-X) due to increased capacity and lower-than-expected costs in salaries, maintenance, and other areas. The company continues to focus on driving efficiencies to counter inflationary pressures.

Southwest Airlines Amends Agreement with Elliott Investment

On February 19, 2025, Southwest Airlines amended its Cooperation Agreement with Elliott Investment Management, increasing Elliott’s potential economic exposure in the airline’s stock from 14.9% to 19.9%. The agreement also maintains restrictions on Elliott’s beneficial ownership until April 2026. Additionally, Ryan Green, the company’s Executive Vice President & Chief Transformation Officer, announced his resignation effective April 1, 2025, which marks a significant leadership change for Southwest Airlines.

Southwest Airlines Announces Major Workforce Reduction

On February 17, 2025, Southwest Airlines Co. announced a significant reduction in its corporate workforce, eliminating approximately 1,750 roles, or 15% of its corporate positions, as part of a transformational plan to enhance efficiency and agility. This unprecedented decision, aimed at reducing operating costs, is expected to generate substantial savings for the company, despite an initial one-time charge for severance and benefits, with expected savings of $210 million in 2025 and $300 million in 2026.

Southwest Airlines Appoints Tom Doxey as CFO

On February 10, 2025, Southwest Airlines announced the appointment of Tom Doxey as Executive Vice President & Chief Financial Officer, effective March 10, 2025. Doxey, with a robust background in aviation finance and strategic transformation, previously led Breeze Airways to profitability and held significant roles at United Airlines. His expertise is anticipated to strengthen Southwest’s financial and operational leadership.

Southwest Airlines Announces Board Member Departures

On February 4, 2025, Southwest Airlines announced that Eduardo F. Conrado and Elaine Mendoza will not seek re-election to the Board of Directors and will retire following the 2025 Annual Meeting. Their departure is aligned with a Cooperation Agreement involving Elliott Investment Management and related entities, and is not due to any disagreements with the company’s operations or policies.

Southwest Airlines Reports Record 2024 Financial Results

On January 30, 2025, Southwest Airlines reported record financial results for the fourth quarter and full year 2024, with net income of $261 million and $465 million, respectively. The company achieved record operating revenues, driven by strong execution of tactical initiatives and robust demand. Additionally, Southwest Airlines announced a $750 million accelerated share repurchase program, while expressing optimism about its ongoing ‘Southwest. Even Better.’ transformational plan, including a newly amended co-brand agreement with Chase. The company aims to enhance shareholder returns and modernize customer experience, supported by a positive industry backdrop and strategic cost reduction targets.

Southwest Airlines Alters Convertible Notes Settlement Approach

Southwest Airlines Co. announced a change in the settlement method for its 1.250% convertible senior notes due 2025, opting to settle in cash. This decision, communicated to securityholders and the trustee, may impact the company’s financial operations and stakeholder relations as it approaches the maturity of these notes.