Southwest Airlines (LUV) announced discounts on its flight tickets for summer travel. The discounted airfares will vary from $39 to $179 each way across the U.S.
The sale ends on July 14 and is being levied on travel between August 23 and December 14. The airfare sale comes with conditions like no travel on Fridays and Sundays and blackout dates like Labor Day. Seats remain limited and the offer might not be valid on every flight.
Weighing up the seasonal benefits to business, Southwest Airlines was the first to announce an airfare sale that extends into summer. Summer travel boosted revenue growth in May by 11% from the year-ago level. Additionally, load factor also increased year over year.
Currently, airline companies expect lower demand during the fall winter season. They are therefore taking resort to discounted airfares to attract passengers. However, the steeply rising fuel prices remain unfavorable for airfares, and airlines are left with limited pricing flexibility.
Recently, JetBlue Airways (JBLU) discontinued its “all-you-can-jet” airfare plan that included passes for unlimited flights for a month during fall. Instead, the company now offers 30% discount on per round trip, reflecting the pricing constraints due to the surging fuel cost.
Considering fuel market trends, if fuel price hovers around $3 per gallon, the airline industry could incur costs of $54 billion, which is $15 billion more than last year.
So the peak season revenues remains crucial for Southwest and all the other airlines to offset staggering fuel cost and derive substantial benefits by attracting more travelers on discounted tickets.
Currently, we maintain our long-term Neutral recommendation on Southwest, supported by the short-term (1–3 months) Zacks #3 Rank (Hold).
