There's a common misperception that when large carriers go bankrupt, they emerge stronger due to better leverage with employee compensation and lower debt levels. This is used to explain why LUV has been a lackluster performer for years. This is simply not true. LUV's problem hasn't been Continental emerging from bankruptcy lean and mean, its problem has been other low-cost carriers imitating its model in cities Southwest hasn't already entered-- namely Airtran, ATA, Frontier, and JetBlue.
So while there may be a bunch of bankruptcies of major airlines, this won't deter Southwest from profitable growth in the next few years. What's more important to LUV is the competition in Denver (Frontier), Chicago (ATA), New York (JetBlue), and other secondary cities (Charlotte, Florida). On this battlefield, Southwest is about to emerge victorious. Chicago Midway battle is now over, with ATA capitulating. Frontier/Denver battle is no Southwest's also, with Southwest adding flights monthly vs. retreating Chapter 11 Frontier. Where is next? Dunno. Could be Florida, an Airtran and JetBlue stronghold, but it could also be yet another major airport as Southwest has done in Pittsburgh, Phoenix, and Philadelphia. Lookout Charlotte and USAirways?
In any case, the LUV funk is over. This latest burst of oil prices should help Southwest clear the runways for easier growth vs. wiley low-cost upstarts and wanna-bes. Note that Skybus made the mistake of trying to start a low-cost airline in an airport Southwest already ruled, Columbus. Foolish, and it proves there's no other cities left to hide for an upstart carrier.
Airlines are an excellent investment right now, as Wall Street is too pre-occupied with temporarily high oil prices. What they SHOULD be concerned with, is airplane manufacturers.
$13.53 (06/03/08)
