Southwest Airlines Co. (LUV)

Junkyardhawg1985 (96.56) Submitted: 1/20/2009 11:57:35 AM : Start Price: $8.42 LUV Score: -22.38

My view is that the airline industry has underinvested for years. As a result, airplanes have gotten older and the American industry has notbeen replacing planes adequately. Southwest has one of the youngest fleets in the airline industry. They are profitable, trade near net tangible assets, and enterprise value to revenue ratio around 0.5 and growing revenue. They have unwound their hedge positions which cost them cash in the short term, but will result in immediate fuel savings for 2009.

Southwest has also performed poorly compared to the rest of the industry lately. In the past 6 months, LUV has fallen 50% while CAL has risen 100%. This changes the relative value of the two companies by a factor of 4. I expect the two to come back closer together.