Southwest Airlines Stock Gains a Buy Rating, But CEO Predicts 'Brutal Low-Fare’ Pressure

Southwest Airlines stock price surged almost 30% in the past two weeks amid hopes over steady demand recovery for passenger carriers in the coming months, but chief executive officer Gary Kelly claims that the fierce competition between airlines could create a ticket pricing pressure on already struggling airlines.

The chief executive officer says Southwest is planning to accelerate cost-cutting measures to boost margins in the wake of the potential price war.

“We’re well prepared for this catastrophe and we must strive to stay that way,” Kelly said. “Our low-cost philosophy, strategy, and structure will serve us very well.”

Gary Kelly also predicts that despite capacity cuts, the number of passengers will remain below from available airline seats in the near term.

Meanwhile, the market analysts have started showing confidence in Southwest Airlines future fundamentals and balance sheet.

UBS has provided a Buy rating with a price target of $41, implying a significant upside from the current price of $30 a share at present.

Southwest Airlines stock price rose sharply in the past few weeks after seeing a massive selloff in the past two months. Its shares are still down 40% year to date.

“Unlike many other airlines, the balance sheet position of LUV is remarkably clean (near-net cash balance sheet), which provides protection from any step backward in demand under another wave of COVID-19,” UBS analyst Myles Walton said.

In addition, Southwest is a top airline pick in Bank of America’s view because of its more conservative balance sheet. BofA provided a buy rating as the bank claims that Southwest has the best balance sheet in the group. The banks also predict that Southwest is in a strong position to reduce their debt at a faster pace than peers.