Must-know: An overview of Southwest Airlines (Part 12 of 13)
What has supported Southwest’s increase in share price?
Southwest has provided investors with returns of more than 100 % stock price appreciation in the past year apart from providing regular dividends and investing in stock repurchases when Southwest’s share price hit an all-time high this year. The price increased from $13.36 on July 15, 2013, to $27.9 as on July 15 , 2014—an increase of 108.8%. As seen in the following graph, it has outperformed the Airline Index and the S&P 500 Index.
The share prices of almost all major U.S. airline companies have performed well in 2014. Price increases are a result of strong financial performance during the period supported by healthy economic conditions and rising travel demand. It reflects growing investor confidence.
According to Airlines for America (or A4A), the net profits of nine major U.S. carriers totaled $401 million in 1Q14 despite flight cancellations due to severe winter storms. This was driven by increasing demand for air travel as passenger traffic increased by 2.1%. U.S airline companies recorded an operating profit of $1.5 billion in 1Q14 as operating revenue increased in by 3.7% and fuel cost reduced by 4.3%. In anticipation of increasing demand for travel, U.S. airline companies plan $12 billion capital expenditure for 2014 and have a total of 1,751 aircraft orders of which 255 will be delivered in 2014. However, stock price performance of these airline companies are subject to risks of volatility in fuel prices and high levels of debt.
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