3 Reasons to Sell Southwest Airlines Today

The recent run-up in the market would make it easy to justify selling any stock these days. Yet, while panic never helps investors, it's still a good idea to play devil's advocate with investments.

Consider low-cost airline Southwest Airlines (NYSE: LUV  ) . Though the alternative airline has a strong track record, you'll find that a few of the 1,424 Motley Fool CAPS members weighing in on the company offer reasons to be bearish.

Here at the Motley Fool, we like to consider both the good and bad sides of an investment, so in this article, so I'm highlighting three of the main bearish arguments on Southwest Airlines today. Be sure to read the bullish side as well, and then weigh in with your own comments below or rate Southwest Airlines in CAPS.                      

1. Weak travel
Although Southwest posted a first-quarter profit along with Alaska Air Group as they met analyst expectations, air travel is still far from pre-recession levels and there's no clear timeline on a recovery. AMR (NYSE: AMR  ) posted a whopping $505 million loss in its most recent quarter and hasn't been able to boost passenger traffic, and one Morningstar analyst sees week organic growth prospects for Southwest because of domestic market saturation. Despite a possible comeback for Southwest, some investors are leery and chose to sit on the sidelines.

2. Rising fuel costs
Rising costs remain a concern for airlines and investors. While Delta (NYSE: DAL  ) was able to lower its fuel costs in the first quarter, Southwest's fuel costs jumped nearly 18% over last year, and US Airways' (NYSE: LCC  ) jumped more than 40%. And AirTran Holdings (NYSE: AAI  ) warned that higher fuel costs would "cut directly" into profit, leaving some investors cautious on Southwest's earnings growth.

3. Bad history
Some CAPS members see airlines in general as a tough place to invest successfully, due to a number of factors that have squeezed the sector for decades. With other ways to profit from the travel industry, such as online travel company priceline.com (Nasdaq: PCLN  ) , which has bucked the economic trend by churning out huge growth in revenue and earnings, some investors just say no to airlines.

To see details of what CAPS members are saying now about Southwest Airlines, just click on over to Motley Fool CAPS and have a look -- or add your own thoughts directly to this story in the comments box below.

The Motley Fool Stock Advisor service looks for companies with strong management poised to beat the market over the long haul. To see all the stocks that have helped Tom and David Gardner beat the market by 63 points on average, take a free 30-day trial.

Fool contributor Dave Mock thinks the number three is underrated and suffers unduly in the shadow of number one. He owns no shares of companies mentioned here. priceline.com and Morningstar are Stock Advisor picks. The Fool's disclosure policy avoids problems at airport screens by not bringing toiletries on trips altogether -- go natural, baby!


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 01, 2010, at 2:15 PM, mfm100 wrote:

    If American wanted to make money, They would use the correct equipment in the right markets.

    Come July, All MIA-LAX will be on a 757. cutting capacity!

    American, Utilizes American Eagle, instead of AA mainline, thus cutting seat capacity and earnings!

    AA's answer is putting First class seats on the regional jet.

    THEY ALSO WANT TO CODE SHARE WITH JET BLUE! CODE SHARE ON OTHER AIRLINES INSTEAD OF PUTTING PASSENGERS ON AA!

    THEY MAKE MONEY SELLING TICKETS ON OTHER "CODE SHARE" AIRLINES INSTEAD OF FLYING THEIR OWN EQUIPMENT!

    Thats not going to work!

    AA is currently negotiating labor contract and have to "PLAY POOR"

    Yet, Management has received millions in bonuses!

    So, on your next flight, if thing do not work and your delayed, DO NOT YELL AT THE EMPLOYEES!

    WRITE TO THE CEO! PLEASE TELL MANAGEMENT ALL YOUR COMPLAINTS!!

    THEY NEED TO GET TO "KNOW THEIR CUSTOMER NEEDS"

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