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Will Southwest Airlines Give Investors Some Love When It Reports?

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Will Southwest Airlines Give Investors Some Love When It Reports? PART 1 OF 7

Southwest Airlines Stock Fails to Rally Investors in 3Q16

Stock movement

In 4Q15, Southwest Airlines’s (LUV) stock saw the highest gains in the airline industry, while all other regional players’ stock declined. LUV’s positive momentum continued in 1Q16, although at a slower pace of about 4%. The trend reversed in 2Q16 and Southwest Airlines’s stock fell ~12.5%.

Southwest Airlines Stock Fails to Rally Investors in 3Q16

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In 3Q16, Southwest Airlines’s stock fell 0.8% while stocks of other airlines also embarked on a losing streak. Among the regional players, Allegiant Air Travel (ALGT) fell 13%, making it the biggest loser, followed by Spirit Airlines (SAVE), which lost 5% in the same period. JetBlue Airways (JBLU), which was the biggest loser in 2Q16 with a drop of almost 21.6%, rose 4% in 3Q16.

On the other hand, shares of all legacy carriers also gained. American Airlines (AAL) was the biggest gainer and rose 29%. In the same period, AAL was followed by United Continental (UAL), which rose 28%. Alaska Air Group (ALK) rose 13% and Delta Air Lines (DAL) rose 8% in the same period.

The broader market, tracked by the SPDR S&P 500 ETF (SPY), rose ~3% during 3Q16. Because airline travel is a discretionary budget item for consumers, we can compare an airline’s performance with the consumer discretionary sector. The Consumer Discretionary SPDR ETF (XLY) also rose 4% during the quarter.

Series overview

Southwest Airlines (LUV) is expected to announce its 3Q16 earnings on October 26, 2016. In this series, we’ll examine why investors have become pessimistic about Southwest Airlines, the short-term risks for the airlines, and what to expect for fiscal 2016. We’ll also discuss key indicators that investors should watch for.

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