Southwest Airlines Co (NYSE: LUV)

Sector: Industrials Industry: Airlines CIK: 0000092380
Market Cap 29.18 Bn
P/B 3.66
P/E 66.17
P/S 1.04
ROIC (Qtr) 2.51
Div Yield % 1.33
Rev 1y % (Qtr) 7.39
Total Debt (Qtr) 5.98 Bn
Debt/Equity (Qtr) 0.75
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About

Southwest Airlines Co., commonly known as Southwest Airlines, is a prominent player in the United States and near-international passenger airline industry. Established in 1967, the company has its headquarters in Dallas, Texas. Southwest Airlines has earned recognition for its unique route network, affordable prices, and exceptional customer service. As of December 31, 2023, the company boasted a fleet of 817 Boeing 737 aircraft, serving 121 destinations across 42 states, the District of Columbia, Puerto Rico, ten near-international countries, and...

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Investment thesis

Bull case

  • Healthy cash reserves of 3.23B provide 5.08x coverage of short-term debt 636M, demonstrating strong liquidity position and minimal refinancing risk.
  • Strong tangible asset base of 28.09B provides 4.70x coverage of total debt 5.98B, indicating robust asset backing and low credit risk.
  • Operating cash flow of 1.84B provides exceptional 11.03x coverage of interest expenses 167M, showing strong debt service capability.
  • Retained earnings of 16.39B provide full 3.07x coverage of long-term debt 5.34B, indicating strong internal capital position.
  • Retained earnings of 16.39B represent substantial 2.05x of equity 7.98B, indicating strong internal capital generation.

Bear case

  • Operating cash flow of 1.84B barely covers its investment activities of (1.43B), with a coverage ratio of -1.29, indicating heavy reliance on external financing for growth which may not be sustainable in a tighter credit environment.
  • Operating cash flow of 1.84B provides thin coverage of dividend payments of (399M) with a -4.62 ratio, suggesting potential dividend sustainability issues if operational performance deteriorates.
  • Free cash flow of (831M) provides weak coverage of capital expenditures of 2.67B, with a -0.31 ratio suggesting additional external financing needs for growth initiatives.
  • Operating earnings of 730M show weak coverage of depreciation charges of 1.56B, with a 0.47 ratio indicating high capital intensity and potential reinvestment needs.
  • High financing cash flow of (4.69B) relative to working capital of (5.28B), which is 0.89x suggests concerning dependence on external funding for operational needs.

Product and Service Breakdown of Revenue (2025)

Geographical Breakdown of Revenue (2025)

Peer comparison

Companies in the Airlines
S.No. Ticker Company Market Cap P/E P/S Total Debt (Qtr)
1 DAL Delta Air Lines, Inc. 45.93 Bn 9.18 0.72 20.27 Bn
2 UAL United Airlines Holdings, Inc. 37.05 Bn 11.05 0.63 31.04 Bn
3 LUV Southwest Airlines Co 29.18 Bn 66.17 1.04 5.98 Bn
4 AAL American Airlines Group Inc. 9.42 Bn 15.65 0.17 36.06 Bn
5 ALK Alaska Air Group, Inc. 6.72 Bn 67.15 0.47 6.89 Bn
6 SKYW Skywest Inc 4.33 Bn 10.12 1.07 2.47 Bn
7 AERO Grupo Aeromexico, S.A.B. de C.V. 2.64 Bn 7.49 0.49 4.06 Bn
8 JBLU Jetblue Airways Corp 2.20 Bn -3.66 0.24 9.42 Bn

Industry comparisons

Current Valuation Value Ind Avg Percentile
EV to Assets EV to Assets 1.09 0.75
EV to Cash from Ops. EV/CFO 17.12 -1.78
EV to Debt EV to Debt 5.27 1.92
EV to EBIT EV/EBIT 43.20 12.70
EV to EBITDA EV/EBITDA 15.86 -7.83
EV to Free Cash Flow [EV/FCF] EV/FCF -37.95 4.43
EV to Market Cap EV to Market Cap 1.08 2.37
EV to Revenue EV/Rev 1.12 1.05
Price to Book Value [P/B] P/B 3.66 0.89
Price to Earnings [P/E] P/E 66.17 14.33
Dividend Metrics Value Ind Avg Percentile
Dividend Coverage Ratio Div Coverage (Qtr) 1.11 22,529.03
Dividend Payout Ratio % Div Payout % (Qtr) 87.80 7.43
Dividend per Basic Share Div per Share (Qtr) 0.72 0.11
FCF Dividend Payout Ratio % FCF Div Payout % (Qtr) -44.80 -2.56
Interest Coverage Int. cover (Qtr) 4.37 1.76
Growth Metrics Value Ind Avg Percentile
Capex Growth (1y) % Capex 1y % (Qtr) -30.14 -69.47
Cash and Equivalents Growth (1y) % Cash & Equiv 1y % (Qtr) -56.97 40.07
Dividend Growth (1y) % Div 1y % (Qtr) 0.00 2.71
EBIAT Growth (1y) % EBIAT 1y % (Qtr) -13.18 -58.97
EBITDA Growth (1y) % EBITDA 1y % (Qtr) 0.51 80.32
EBIT Growth (1y) % EBIT 1y % (Qtr) -13.81 -22.88
EBT Growth (1y) % EBT 1y % (Qtr) -5.85 -112.97
EPS Growth (1y) % EPS 1y % (Qtr) 5.13 -167.26
FCF Growth (1y) % FCF 1y % (Qtr) 47.80 2,772.29
Gross Profit Growth (1y) % Gross Profit 1y % (Qtr) 5.79 7.74
Liquidity Ratios Value Ind Avg Percentile
Asset Utilization Ratio Asset Util Ratio (Qtr) 0.97 0.74
Cash Payout Ratio Cash Payout (Qtr) 0.09 0.01
Cash Ratio Cash Ratio (Qtr) 0.30 0.24
Current Ratio Curr Ratio (Qtr) 0.52 0.56
Debt to Equity Ratio Debt/Equity (Qtr) 0.75 0.61
Interest Cover Ratio Int Coverage (Qtr) 4.37 1.76
Times Interest Earned Times Interest Earned (Qtr) 4.37 1.76
Profitability Value Ind Avg Percentile
EBITDA Margin % EBITDA Margin % (Qtr) 8.20 5.51
EBIT Margin % EBIT Margin % (Qtr) 2.60 -0.22
EBT Margin % EBT Margin % (Qtr) 2.01 -3.82
Gross Margin % Gross Margin % (Qtr) 69.20 41.52
Net Profit Margin % Net Margin % (Qtr) 1.60 -4.40