10 Worst Airline Stocks To Buy According to Short Sellers

5. Southwest Airlines Co. (NYSE:LUV)

Short Interest as % of Shares Outstanding: 8.72%

Number of Hedge Fund Holders: 23

Southwest Airlines Co. (NYSE:LUV) operates as a major low-cost carrier in the U.S. with service to nearly 120 destinations domestically and 10 international countries including Mexico, Central America, and the Caribbean. It uses a point-to-point network and operates a fleet exclusively of Boeing 737 aircraft, making it the largest operator of this model.

The company is known for its customer-friendly policies, such as allowing two free checked bags and no fees for flight changes, as well as its unique boarding process. The airline’s frequent flyer program, Rapid Rewards, uses a points-based system and offers flexible redemption options without blackout dates.

On September 20, TipRanks reported that Jefferies analyst Sheila Kahyaoglu reaffirmed a Sell rating on Southwest Airlines (NYSE:LUV), with a $20 price target, as the analyst highlighted some operational and financial challenges. Some of the analyst’s major concerns include a lower passenger load compared to 2019 and lower revenue per seat mile, compared to its network competitors. The shift to larger aircraft has raised non-fuel costs, leading to an 80% reduction in 2024 earnings estimates.

The analyst said that even though the company is introducing changes like more legroom and overnight flights, these may not offset revenue losses from its EarlyBird seating program. The airline’s cost-cutting efforts are not fully realized yet, and adjustments in aircraft orders pose further financial risks.

Despite challenges faced by Southwest Airlines (NYSE:LUV), its stock was held by 23 hedge funds in the second quarter and the stakes amounted to $429.489 million. Elliott Management is the biggest shareholder of the company and has a position worth $171,660 million, as of June 30.