Southwest Airlines Co. (LUV)

I did a presentation on Southwest airlines for a class, and I found information that makes me believe they will underperform the S&P 500 within the next two to four years.

In the past, Southwest has posted profits while their competitors have been suffering. Their success comes from hedging oil prices. By the year 2010, our case study reveals that they won't be able to hedge 100%. Rising fuel prices have been a heavy burden on the competitors, and Southwest's hedging strategy provided them a large advantage that made them profitable. When the company is unable to use this strategy, their stock will decrease in value.

My second concern with Southwest is that they have new market entrants to worry about. New and growing companies are using the same low cost structure that Southwest implements. One of these new companies is JetBlue airways. They have newer planes, and more amenities for customers such as individual televisions for each passenger and more leg room. I think that new competitors will be a threat to southwest and this will contribute to the stock underperforming the S&P 500 in the next two to four years.