Southwest Airlines Will Still Beat the Market

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Of all the frightening words that populate the world of commercial aviation -- "delay" and "lost," to name two -- none are more petrifying than "malfunction." Southwest Airlines (NYSE: LUV  ) has suffered three in the past week, and as a result, it's fallen under the watchful eye of inspectors from the Federal Aviation Administration (FAA).

On Friday, Southwest Flight 812 from Phoenix to Sacramento lost cabin pressure when cracks in the fuselage opened into a five-foot-wide hole. The flight landed safely, and Southwest began a program of intensified inspections the next day, resulting in roughly 370 cancelled flights.

But getting aggressive has also yielded benefits. As of Sunday, the carrier was able to confidently return to service 19 of the 79 Boeing (NYSE: BA  ) 737 jets under inspection. Checks on the remaining aircraft were due to be finished today; 57 had been cleared as of last night. Two have shown subsurface cracks in need of repair.

For investors, Flight 812's emergency landing and the subsequent inspections raise questions over whether Southwest needs to modernize its fleet. If so, the company's edge over United (NYSE: UAL  ) , JetBlue (Nasdaq: JBLU  ) , or Delta (NYSE: DAL  ) , its closest peers, in returns on capital and equity could fade for a time. Rest assured that these companies will all make concerted efforts to take their piece of Southwest's market share. With the competition inherent in the airline industry, any weakness for a company becomes an opportunity for its competition.

However, I'm not so sure that this even matters. Southwest's culture of service -- its competitive edge -- shows no signs of changing. According to passenger reports I've read, airline employees are personally reaching out to affected customers. The effort seems to be strengthening bonds that were tight to begin with.

Passenger Julian Huerta told a reporter from Austin, Texas TV station KXAN that he didn't even consider rebooking a cancelled Southwest flight on another carrier. Want to bet that he isn't the only one?

Now it's your turn to weigh in. Let us know what you think about the incident, the airline's capital spending needs, and Southwest's service using the comments box below.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy always passes inspection.

Read/Post Comments (4) | Recommend This Article (5)

Comments from our Foolish Readers

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 April 05, 2011, at 11:43 PM, BigBadViper wrote:

    I am a Southwest A-List member. In fact I just got of a flight about 1 hour ago. I have made over 50 flights on them this year and love them. Reason I had the flight tonight is that I got done with my meeting early and took a later flight tonight for absolutely no charge, no change fee, no baggage fees, nothing.

    I had to reroute one of my guys on US Air last week and that cost me $180. Myself and my whole company will fly Southwest as much as we can.

  • Report this Comment On April 06, 2011, at 7:55 AM, gcmc2010 wrote:

    One needs to look at more than just the current spate of bad news. I have been a long time supporter and owner of LUV but this is just the most recent bad news. They have always been the best managed airline in the industry and a trend setter. The acquisition of Air Trans has not gone as well as expected. While they've gained slots and connecting flights, the inability to move baggage has moved LUV to one of the worst on-time departure ratings in the industry. Second there have been safety issues before that apparently haven't been properly addressed. LUV's turnaround time was one of the fastest in the industry. The long terms affects on stress and it's impact on fleet replacement are just now being determined. And while Southwest is trying to take advantage of the no change fee, no baggage fee mantra, one has to look at the reduced income PLUS the millions in daily TV advertisements(trying to capitalize on it) and whether that makes sense at a time when fuel costs are exponently increasing costs. I think the combination of these issues will challenge Southwest's management for a long time. Yes I think they have the ability as witnessed by their history but like a lot of companies, I think management has been a bit too complacent and now is in damage control mode.

  • Report this Comment On April 06, 2011, at 8:24 AM, lynx106 wrote:

    SouthWest should discontinue routes that have less than 60 minutes flying time. Instead they should focus more on medium length routes. This will result in major cost savings and also prolong the life of their airplanes.

  • Report this Comment On April 06, 2011, at 8:42 AM, UAf1yer wrote:

    Besides whats been said, I see only 2.

    1) SWA already has over 100 new AC on order, well above other US airlines versus fleet.

    2) Even without Oil hedges, the level playing field favors SWA because their core product will be the most survivable markets and first to recover as Air travel recoils/expands.

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