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We recently compiled a list of the Top 10 Airline Stocks Benefiting From The Air Travel Boom. In this article, we are going to take a look at where Southwest Airlines Co. (NYSE:LUV) stands against the other airline stocks.
The aviation sector wasn’t short of optimism heading into the new year as air travel demand reached pre-covid highs and the holiday season showed promise. That optimism is now turning into reality as Delta Airlines announced its Q4 earnings result and surprised to the upside. The announcement has spurred a rally across airline stocks as expectations of other companies posting an earnings beat rise.
Delta reported improved operating margins of 12% vs 9.9% from a year ago. It improved the revenue per available seat mile from $0.1995 a year ago to $0.2004 in the last quarter. All of its international regions showed sequential improvement as revenue generated from international passengers grew at 6%. The company has also improved its guidance for the first quarter to $0.85 at the midpoint to the prior $0.76.
We now look at how this may affect other stocks across the industry.
A commercial Boeing 737 aircraft flying in the sky with the well-known SWABIZ logo on it.
Southwest Airlines Co. (NYSE:LUV)
A subpar performance in 2024 continues Southwest Airlines' slump in the past few years. Once known as one of the most efficient and profitable airlines, LUV has fallen out of favor with investors and is making significant strategic changes to gain back both travelers’ and investors’ trust.
One of the drivers of LUV’s growth in 2025 will be the addition of redeye flights. A redeye flight is one where the flight takes off late in the evening or at night and arrives at its destination in the early hours of the morning. In the past, the airline has not run these flights because its business model predominantly worked on running shorter affordable flights. Its systems did not support these flights and its labor contracts also didn’t allow it.
In February 2025, LUV will be able to run its first redeye flight, slowly expanding from major airports across the East and West Coasts to other destinations. At the same time, it will trim its intra-Hawaii flights. On the product level, LUV could start monetizing the more preferred seats within its planes. This avenue has not yet been tapped by the company but 2025 will most likely be the year when the company starts generating revenue from extra legroom and priority boarding, like many other airlines do.
Overall LUV ranks 4th on our list of the to airlines stocks benefiting from the air travel boom. While we acknowledge the potential of LUV as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as LUV but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.