LUV Financial Analysis

Analysis Date: 1/31/2025

Business Model

Southwest Airlines generates revenue primarily through passenger transportation, with supplementary revenue from freight and other services

Revenue Sources

• Passenger revenue (91% of total revenue in Q4 2024)
• Freight revenue (0.6% of total revenue in Q4 2024)
• Other revenue including ancillary services (8.4% of total revenue in Q4 2024)

Revenue Distribution by Channel

• Direct to consumer represents majority of bookings

Income Statement Analysis

• Operating revenues increased 1.6% YoY to $6.9B driven by 1.5% growth in passenger revenue
• Operating expenses decreased 7.9% YoY primarily due to lower fuel costs
• Operating income improved to $278M from -$404M loss in prior year

Balance Sheet Analysis

• Strong liquidity position with $8.7B in cash and investments
• Unencumbered assets of $16.3B including $13.3B in aircraft value
• Net cash position of $2.0B and leverage ratio of 43%

Cash Flow Analysis

• Operating cash flow increased 12% YoY to $476M
• Received $871M proceeds from sale-leaseback transaction
• Paid $1.3B to retire debt and finance lease obligations

Capital Allocation

Southwest maintains strong balance sheet with $8.7B in cash/investments and $1.0B available credit line. Returned $680M to shareholders in 2024 through $430M dividends and $250M share repurchases. Plans additional $750M accelerated share repurchase in Q1 2025. Capital expenditures of $2.1B in 2024, with 2025 spend projected at $2.5-3.0B.

Management Commentary

Record Q4 revenue performance driven by tactical initiatives and strong demand

Exceeding expectations on revenue management system improvements

Strong operational performance with industry-leading completion factor

Facing cost pressures from labor and inflation

Overall Sentiment: Confident in strategic initiatives and revenue momentum while focused on cost management

Recommendation

Rating: Buy

Reason for Rating: Strong revenue momentum and operational execution offset by near-term cost pressures

Disclaimer: This analysis is based on company filings and public information. It is for informational purposes only and not financial advice. Past performance does not guarantee future results. All investors should do their own due diligence before making investment decisions.

Generated on: 1/31/2025, 1:07:55 PM