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After experiencing not-so-favorable traffic figures over the last two months, Southwest Airlines Co. (LUV - Analyst Report) witnessed traffic and capacity growth in March 2013. The results were influenced by the increased number of passengers traveled and trips undertaken.

The company’s traffic – measured in revenue passenger miles (RPMs) – was 9.44 billion for the reported month, up 4.0% from 9.07 billion recorded a year ago. On a year-over-year basis, consolidated capacity (or available seat miles/ASMs) moved up 3.8% to 11.51 billion. The load factor or percentage of seats filled by passengers improved marginally to 82.0% from 81.8% in Mar 2012.

For the first three months of this year, Southwest generated RPMs of 23.75 billion (up 0.3% year over year) and ASMs of 30.80 billion (up 0.6% year over year), while load factor was 77.1%, reflecting a decline of 20 basis points.

We believe that the company is attracting more passengers with the addition of new and innovative features to its products and services. The company’s All-New Rapid Rewards program and increased ancillary product offerings such as EarlyBird check-in, unaccompanied minor travel and pet fees are expected to generate high revenues and profits in the coming months.

Dallas-headquartered Southwest Airlines, along with AirTran, operated 694 aircraft by The Boeing Company (BA - Analyst Report), serving 97 cities in 41 states, as of Dec 31, 2012. The Southwest-AirTran integration is progressing well. Southwest converted 11 AirTran 737 – 700s aircraft into the Southwest livery at year-end 2012.

Southwest – which operates along with other prominent players such as United Continental Holdings (UAL - Analyst Report) and JetBlue Airways (JBLU - Analyst Report) – currently holds a Zacks Rank #3, implying a Hold rating.

We remain on the sidelines due to various headwinds such as unstable economic conditions, competitive pressures, regulatory interferences, high operating costs like fuel, maintenance, salaries, wages and airport fees plus new advertising policy and technological failures.

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