Southwest will soar again into open U.S. skies

Reuters


Reuters

NEW YORK (Reuters Breakingviews) – The costs of Southwest Airlines’ Christmas debacle landed on Friday. The company expects that some 17,000 flight cancellations will eat away between $725 million and $825 million of fourth-quarter pre-tax profit, creating a net loss in the period. It may inspire boss Bob Jordan to invest more to upgrade clunky technology, but a consolidated industry means customers will stay in coach while shareholders keep riding premium.

Despite experiencing major disruptions before, $20 billion Southwest always manages to resume cruising altitude. In the 10 years through mid-December, it led the U.S. pack by delivering a 15% annualized return, including dividends. Its cost-conscious ethos deserves part of the credit, but so does a lack of competition. Southwest, United Airlines, Delta Air Lines and American Airlines account for about two-thirds of the market.

And while it used to be easier for dreamers to lease some planes and bust into the business, that is no longer the case. JetBlue Airways, for example, started 25 years ago, but has generated only a 2.4% annual return over the last decade. The Southwest enterprise now trades below 4 times expected 2023 EBITDA, a discount to peers. Absent any significant regulatory intervention, expect that multiple to take off. (By Jeffrey Goldfarb)

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(Editing by Amanda Gomez and Sharon Lam)

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