When it comes to customer service, airliners could use some work. At least, that’s what the latest ASCI (American Consumer Satisfaction Index) report says. This year, the airline industry scored 69 out of 100. Of the 43 industries that were covered, only cable and internet service
providers scored lower.
This year’s dogs were United (UAL)–which scored lowest at 62, and Delta (DAL)–which
Still, some players in the industry are doing better than others. For the second year running, JetBlue (JBLU) topped the list with a score of 83. And Southwest Airlines (LUV) lived up to its ticker symbol–the company has made the top two for the past two decades straight. This year,
Southwest Airlines was awarded an 81.
But when it comes to Portfolio Grader rankings, none flies higher than LUV, which is currently an A-rated buy. In an industry plagued with politics and regulations, Southwest is by far the most efficient passenger airline in the U.S. To start, the company has been smart in hedging its fuel costs, so it is able to undercut the competition. And with airline tickets and fees being as high as they are, passengers recognize the value in flying Southwest. With nearly 700 aircraft in its fleet, Southwest serves 97 destinations across 41 states, the District of Columbia and Puerto Rico.
Recently, higher fares helped drive stronger-than-expected first-quarter earnings. According to management, the average one-way fare has now topped $150, a 4% increase over last year.
Looking ahead, the company says that lower fuel costs should counteract losses seen from
government budget cuts. This year, analysts expect Southwest Airlines to post 3.2%
sales growth and 88% earnings growth–over double the industry average. All the while LUV yields 1.2%–a generous dividend by airline standards.
That includes even customer favorite JetBlue, which is expected to grow earnings by just 30% this year. Also, while analysts have been scrambling to hike up this year’s earnings projections for Southwest, they’ve been cutting their estimates for JetBlue. While JetBlue has seen passenger traffic increase, it hasn’t been able to reduce costs the way Southwest has. On top of
this, the company has been struggling in terms of cash flow, so it receives a D for its
Fundamental Grade. This, coupled with lackluster buying pressure, keeps JBLU grounded at a C-rated hold.
The bottom line? It pays to keep the customer happy. But it pays even better to keep the
customer happy while keeping costs low.