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Activist Investor Builds Stake in Southwest (LUV) , Shares Up
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Shares of Southwest Airlines (LUV - Free Report) gained significantly in pre-market trading on Jun 10, following a report in The Wall Street Journal that Elliott Investment Management has built a stake of nearly $2 billion in it. Per the report, Elliott is one of the largest investors at the Dallas-based low-cost carrier.
Elliott, one of the world's most prominent investors, aims to discuss with the carrier’s management and push for changes at Southwest which is currently mired in multiple headwinds. LUV is currently suffering from high costs due to escalated expenses on fuel and labor.
Fuel costs are high owing to an escalation in oil price. The northward movement in crude price is primarily due to the ongoing production cut by major oil-producing nations and geopolitical tensions. For second-quarter 2024, economic fuel costs per gallon are expected in the range of $2.70 to $2.80. Our estimate is pegged at $2.77.
For 2024, LUV expects economic fuel costs per gallon guidance in the range of $2.70 to $2.80. Our estimate is pegged at $2.80.
Apart from an increase in fuel costs, a rise in labor and airport costs is also likely to dent bottom-line growth by resulting in a spike in operating expenses.
During first-quarter 2024, consolidated unit cost or cost per available seat mile (CASM), excluding fuel, oil and profit-sharing expenses, and special items, grew 5% year over year. For second-quarter 2024, management expects CASM, excluding fuel, oil and profit-sharing expenses, and special items, to increase 6.5-7.5% from the comparable period in 2023.
Southwest Airlines is also being hurt by the delivery delays from Boeing (BA - Free Report) . With the plane manufacturer likely to deliver only 20 planes to LUV this year, its revenue growth will probably take a hit. Costs too are likely to escalate.
The crisis started when Alaska Airlines’ Ontario, CA-bound flight (1282) saw a panel and window being blown out of the Boeing 737 MAX 9 jet shortly after takeoff from Portland in January. The rapid loss of cabin pressure caused oxygen masks to drop. The fiasco prompted the flight to turn back and make an unscheduled emergency landing in Portland, OR.
Thankfully, none of the 171 passengers or six crew members were seriously injured. Alaska Airlines is the wholly-owned subsidiary of Alaska Air Group (ALK - Free Report) .
LUV, currently carrying a Zacks Rank #5 (Strong Sell), declined 11.8% in a year’s time against its industry’s 19.9% growth.
Image Source: Zacks Investment Research
Eliott’s intention is to reverse LUV’s dismal performance by bringing about changes.
WAB has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 11.5%. Shares of Wabtec have surged 63.9% in the past year.
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Activist Investor Builds Stake in Southwest (LUV) , Shares Up
Shares of Southwest Airlines (LUV - Free Report) gained significantly in pre-market trading on Jun 10, following a report in The Wall Street Journal that Elliott Investment Management has built a stake of nearly $2 billion in it. Per the report, Elliott is one of the largest investors at the Dallas-based low-cost carrier.
Elliott, one of the world's most prominent investors, aims to discuss with the carrier’s management and push for changes at Southwest which is currently mired in multiple headwinds. LUV is currently suffering from high costs due to escalated expenses on fuel and labor.
Fuel costs are high owing to an escalation in oil price. The northward movement in crude price is primarily due to the ongoing production cut by major oil-producing nations and geopolitical tensions. For second-quarter 2024, economic fuel costs per gallon are expected in the range of $2.70 to $2.80. Our estimate is pegged at $2.77.
For 2024, LUV expects economic fuel costs per gallon guidance in the range of $2.70 to $2.80. Our estimate is pegged at $2.80.
Apart from an increase in fuel costs, a rise in labor and airport costs is also likely to dent bottom-line growth by resulting in a spike in operating expenses.
During first-quarter 2024, consolidated unit cost or cost per available seat mile (CASM), excluding fuel, oil and profit-sharing expenses, and special items, grew 5% year over year. For second-quarter 2024, management expects CASM, excluding fuel, oil and profit-sharing expenses, and special items, to increase 6.5-7.5% from the comparable period in 2023.
Southwest Airlines is also being hurt by the delivery delays from Boeing (BA - Free Report) . With the plane manufacturer likely to deliver only 20 planes to LUV this year, its revenue growth will probably take a hit. Costs too are likely to escalate.
The crisis started when Alaska Airlines’ Ontario, CA-bound flight (1282) saw a panel and window being blown out of the Boeing 737 MAX 9 jet shortly after takeoff from Portland in January. The rapid loss of cabin pressure caused oxygen masks to drop. The fiasco prompted the flight to turn back and make an unscheduled emergency landing in Portland, OR.
Thankfully, none of the 171 passengers or six crew members were seriously injured. Alaska Airlines is the wholly-owned subsidiary of Alaska Air Group (ALK - Free Report) .
LUV, currently carrying a Zacks Rank #5 (Strong Sell), declined 11.8% in a year’s time against its industry’s 19.9% growth.
Image Source: Zacks Investment Research
Eliott’s intention is to reverse LUV’s dismal performance by bringing about changes.
A Stock to Consider
A better-ranked stock from the Zacks Transportation sector is Wabtec Corporation (WAB - Free Report) .
WAB currently sports a Zacks Rank #1 (Strong Buy) and has an expected earnings growth rate of 22.6% for the current year. You can see the complete list of today’s Zacks #1 Rank stocks here.
WAB has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 11.5%. Shares of Wabtec have surged 63.9% in the past year.