Southwest Airlines announced last week that the air carrier is adding two new destinations as US customers are gradually resuming leisure travel.
Southwest Airlines (LUV) Chairman and CEO Gary Kelly said that later this year the company will initiate year-round service to both Miami International Airport and Palm Springs International Airport, subject to government approvals. The carrier expects to announce the initial flight schedule and service profile for each airport soon.
The CEO stated, “Adding these specific airports to our route map will bring us access to additional revenue at a critical time. It matches our available fleet with demand for very popular destinations.”
Airlines have been forced to take drastic measures to cut down costs and streamline routes as the COVID-19 pandemic has continued to crush the aviation industry. Calling 2020 the most challenging year in aviation history, the International Air Transport Association estimates that the industry faces losses of $84.3 billion this year.
In a recent update, Southwest’s CEO said that the company had experienced increased bookings in June, but July traffic trends were “stalled” amid rising coronavirus cases. Operating revenues in July fell between 70% to 75% Y/Y.
In August, Southwest experienced a modest improvement possibly due to delayed school start dates and virtual classroom instruction as cited by the company.
Meanwhile, it sees continued modest improvements in booking trends in September. Overall, the company expects third-quarter cash burn at an average $20 million a day compared to its prior estimate of $23 million a day.
On September 2, Berenberg analyst Adrian Yanoshik, upgraded Southwest Airlines stock to Buy from Hold and increased the price target to $45 from $37. The analyst believes that Southwest has the ability to achieve cash break-even more quickly than peers. Yanoshik stated, “Southwest has taken domestic revenue share in excess of its capacity share in recent quarters.”
The analyst added, “It is cutting less domestic capacity than its competitors, adding leverage into an admittedly slow recovery. It will avoid the cash drag stemming from languid intercontinental demand. Further, its 737 MAXs offer lower break-even load factors when they re-enter the fleet, in our analysis.” (See LUV stock analysis on TipRanks).
The Street has a bullish outlook for Southwest Airlines. The Strong Buy analyst consensus breaks down into 10 Buys and 3 Holds. So far, the stock has declined 27% in 2020 but might appreciate about 9% in the coming 12 months as indicated by the average analyst price target of $42.90.
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