Southwest Airlines (NYSE:LUV) is moving now from a budget airline to a cost-effective business model. They are less reliant on the traditional market and aim to offer convenient, quality air service for all travelers. Meanwhile, airline bookings in the U.S. improved this year thanks to a strong shift towards more affordable rates and adding routes that used to be idle due to decreased demand.
Bank of America (NYSE:BAC) mentioned many interesting things about the aviation industry recently, including that it seemed the market had continued to be strong and prices remained high. Therefore, in this environment, LUV stock is a cautious buy.
As of now, resorting to higher fares for consumers has not been met by a decline in bookings for next year. Domestic airfares are quoted at an 8.6% increase from last year. BofA has reported that international bookings are seeing increased interest this year.
They noticed an early rise in international travel after the financial crisis but have sustained growth with a decrease in international-domestic transition. As domestic recovery comes into form, the gap between international, domestic, and overall bookings shrinks. New data on corporate books also shows that things are improving.
Unfortunately, Southwest Airlines’ management faced several headwinds this year that could compromise its performance. Management decided to lower their forecasts and face those challenges head-on. Many companies have the ambition of running at 100% capacity, but most companies find this unrealistic. They instead decide on a better fair goal — 4% less than pre-pandemic levels. This is less ambitious and realistic for the company.
LUV Stock: Smoother Skies Ahead
The overall airline industry is recovering from the disastrous pandemic. However, now investors will look towards individual companies and how they are performing.
Delta Air Lines (NYSE:DAL) reported a loss for the last quarter, but they found ways to make up for it in other business areas, most notably in March. The airline appears to be doing well now. They have increased their revenue and are flourishing in the market.
Delta executives expect another profitable quarter in Q2, with a 93%-97% recovery in revenue and an operating profit margin of 12%-14%.
In the case of Southwest Airlines, the latest numbers offer some insight regarding its future. Overall, the company’s earnings report for the first quarter was mixed. Many analysts expected operating revenue of $4.67 billion, but the revenue was slightly higher than expected at $4.69 billion.
For the first quarter, Southwest posted an adjusted loss of 32 cents a share, which was worse than analyst forecasts. Revenue was up in March, the first month of growth since 2019. Plus, there are other reasons to be optimistic.
Southwest is still experiencing strong leisure bookings this season. Every business trip means more than ever before, and their return of bookings in 2022 is looking to be promising.
Airlines are coming back into demand, which will boost the price of airline stocks. As a result, LUV stock is a buy.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.