Southwest Airlines Shares Fall Amidst Rising Costs, Boosted by Boeing Optimism

Financial Performance

Southwest Airlines (LUV) shares declined 5% last week due to escalating costs overshadowing progress in its turnaround strategy. The airline expects increased expenses in the first half of 2023, similar to concerns expressed by JetBlue (JBLU). Despite these near-term challenges, earnings and margins are expected to remain below peak levels.

Boeing's Impact

Southwest CEO Bob Jordan remains optimistic about the company's recovery, supported by Boeing's (BA) increasing confidence. Production delays have impacted Southwest's capacity and costs. Jordan estimates Boeing's 737 production to surpass the current target of 38 aircraft, potentially reaching 55 this year.

Boeing's Recovery

Boeing has faced setbacks recently, including a midflight incident involving a 737 MAX and a labor stoppage. However, analyst Ron Epstein highlighted Boeing's potential to exceed its target of 38 737s per month, reaching 42 by year-end. Boeing CEO Kelly Ortberg emphasized adherence to safety protocols and a stable factory operation for production ramp-up.

Southwest's Progress

Southwest's cost-cutting initiatives remain on track, driven by strong consumer demand and strategic partnerships. Jordan cited revenue growth and cost efficiency improvements. Southwest shares have gained 8% since the turnaround plan announcement in September.

Analyst Viewpoint

Seana Smith, an anchor at Yahoo Finance, observes a positive outlook for Southwest due to rising revenue and Boeing's recovery. Despite ongoing cost challenges, Southwest's optimistic outlook and execution of its turnaround strategy support positive investor sentiment.