Strong growth prospects for Southwest in 2014: Analyst

Washington DC
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The win of coveted flight slots at key airports and the lifting of flight restrictions at Dallas Love Field will yield favourable prospects for Southwest Airlines in 2014, says Bank of America Merrill Lynch.

"For the first time since 2008, new growth opportunities have emerged," say analysts Glenn Engel and David van der Keyl in a research note.

Southwest walked away as the biggest winner of slots divested by American Airlines in recent months, with 27 slot pairs at Washington National and 11 at New York LaGuardia. Both airports are "high-yielding", note the analysts.

The upcoming lifting of the Wright Amendment at Southwest's base of Dallas Love Field will allow the carrier to operate long-haul from the Texan city - "a $2 billion sized market with high yield", they add.

Southwest is also in the midst of transitioning subsidiary AirTran Airways' international flights to its own metal. "These markets also carry higher yields than domestic," say the analysts.

While the carrier faced a narrowing cost advantage over other major US airlines from 2008 to 2012, this has stabilised in 2013 and is expected to widen in 2014, they add.

"LUV’s [Southwest's stock code] multiple premium has all but disappeared, but the carrier retains one of the sector's best balance sheets and competitive fleets. As LUV restores its margin and growth premium, we expect its multiple to expand," say the analysts.