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Dallas, TX-based Southwest Airlines Co. (LUV - Analyst Report) posted a nominal rise in traffic for May 2014. The month’s traffic – measured in revenue passenger miles (RPMs) – came in at 9.40 billion, up 0.6% from 9.35 billion recorded in the comparable period a year ago.

Meanwhile, on a year-over-year basis, consolidated capacity (or available seat miles/ASMs) decreased 1.5% to 11.23 billion. Load factor came in at 83.7%, up 180 basis points (bps) from the year-over-year figure of 81.9%. PRASM (passenger revenue per available seat miles) went up approximately 8–9% in the reported month.

In the first five months of 2014, Southwest Airlines generated RPMs of 42.68 billion (up 2.0% year over year) and ASMs of 52.88 billion (down 1.1% year over year) leading to a load factor of 80.7% (up by 240 bps).

Several strategies have been adopted by the carrier to boost revenues and reduce expenses over the next three years. With a cost-efficient business model, Southwest Airlines eyes network expansion through the integration of the AirTran aircraft and the addition of domestic and international destinations. Notably, AirTran will be fully integrated with Southwest Airlines by the end of this year.  

The company has also acquired 12 pairs of slots at the LaGuardia (LGA) airport in New York and has won bids to purchase 27 pairs of slots at Reagan National Airport (DCA) in Washington, D.C. These slot wins were part of U.S. Airways Group’s merger with American Airlines to form American Airlines Group Inc. (AAL - Snapshot Report).

Notably, Southwest Airlines’ slot win at New York has widened its scope for expansion in the city, besides consolidating its foothold against peers like JetBlue Airways Corp. (JBLU - Analyst Report) and Delta Air Lines Inc. (DAL - Analyst Report).

Further, the company has decided to extend daily departures from DCA to 44 from the current 17, thus increasing its operations from the airport by more than 2.5 times. Further, Nov 2 onward, the passenger carrier plans to start daily non-stop flights to Arkon-Canton and Indianapolis from DCA and to Las Vegas and San Diego from Washington Dulles International Airport. These new services will strengthen the carrier’s operations in the capital city as well.

The carrier also announced that it will now offer non-stop services to domestic destinations from Dallas Love Field airport, wherein flight limitations will finally be lifted. We believe these initiatives along with the slot wins will create tailwinds for the company going forward.

Southwest Airlines currently holds a Zacks Rank #1 (Strong Buy).

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