Delta Air Lines, Inc. (DAL), United Continental Holdings Inc (UAL), Southwest Airlines Co. (LUV): Profits Lie Ahead

Like other airlines, Southwest regularly “overbooks” its flights to offset the impact of no-shows: i.e. it sells more tickets than there are seats on the plane. However, Southwest’s lax policy for no-shows has made it difficult to predict how many people will show up for a given flight. As a result, in 2012 Southwest and AirTran were worse than every other major airline except United in terms of denied boardings due to overbooking. Under the new policy — which goes into effect in September — customers need to cancel their flights in advance in order to receive fare credits. This will give Southwest more advance warning when customers change their plans, which should help the company sell more seats without having to “bump” passengers as frequently.

Ready for takeoff?
While Southwest Airlines Co. (NYSE:LUV) shareholders have experienced a “lost decade”, the company is positioned well for the future. The AirTran merger is expected to generate $400 million of synergies this year, which could grow even further in the future as Southwest continues to optimize the combined route network. Moreover, Southwest has only scratched the surface of its potential opportunities, as it has been a purely domestic airline in the past but is now ready to explore international expansion. These factors combine to make a strong investment case for Southwest going forward.

The article Profits Lie Ahead for Southwest Airlines originally appeared on Fool.com.

Motley Fool contributor Adam Levine-Weinberg is short shares of United Continental Holdings (NYSE:UAL) and is long Sep 2013 $33 Puts on United Continental Holdings. The Motley Fool recommends Southwest Airlines.

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