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Southwest Targets Rivals' Soft Markets

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Leading U.S. passenger carrier Southwest Airlines Co. (LUV - Free Report) is eyeing those markets in which rival carriers have downsized their operations. Southwest wants to tap opportunities in these markets by leveraging from its recent slot pair wins in New York and Washington D.C.  

The Dallas-based carrier is targeting Memphis, Tennessee, where rival Delta Airlines Inc. (DAL - Free Report) trimmed operations last year. Also on Southwest’s list is the Midwestern city of Cleveland which United Continental Holdings Inc. (UAL - Free Report) no longer wants as its hub. Despite being small markets, Southwest is encouraged by the growth opportunities that these offer. We expect Southwest – known for its low fares – will get a strong foothold in these markets with competitive ticket prices.

Such a practise is not new for Southwest, as the carrier has previously benefited by scaling its operations in the city of Nashville in the 1990s and in St Louis, Missouri, where the erstwhile American Airlines had downsized its service.

The last few months have been really fruitful for Southwest. In Dec 2013, Southwest acquired 22 take-off and landing slots at New York’s La Guardia airport (LGA) and recently won bids to purchase 27 take-off and landing slots at Reagan National Airport (DCA) in Washington. The slot purchase is part of a mega merger deal between American Airlines and U.S. Airways Group that led to the formation of American Airlines Group Inc. (AAL - Free Report) .

The company has decided to add flights to Nashville, Texas, Chicago and Ohio from LGA and expects to expand its operations to large and mid-sized cities from DCA. Apart from slot purchases, the company delivered a stellar fourth quarter of 2013, beating the Zacks Consensus Estimate on both lines.

These positives were, supported by the company’s announcement that it will operate non-stop flights from Dallas starting Oct 13, when the Wright Amendment act is lifted. Additionally, the major passenger carrier has also decided to fly beyond national boundaries to three destinations in the Caribbean Island from Jul 2014. It is thus an encouraging time for both Southwest investors and passengers.  

Southwest sports a Zacks Rank #1 (Strong Buy).

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