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Southwest Airlines Debuts in International Skies

Zacks Equity Research

After operating for several decades within the U.S. domestic market, Southwest Airlines Co. (LUV) is finally flying into international territory, with flights to the Caribbean. The share price gained altitude on the news as the stock closed 3.24% higher on Tuesday trade on Nasdaq.

As announced in Jan 2014, Southwest Airlines inaugurated services from Atlanta, Baltimore and Orlando to Oranjestad, Aruba and Montego Bay, Jamaica. Another flight will fly from the Baltimore-Washington D.C. area to Nassau and Paradise Island, thus extending the carrier’s international service to the Bahamas.

Dallas-based Southwest Airlines announced that after the initial round of flights, it will expand its international service to Cancun and Los Cabos in Mexico starting next month. Flights to Mexico City and Punta Cana, Dominican Republic will thereafter be added from Nov 2.

Southwest Airlines already operates flights to Mexico and Dominican Republic through its wholly owned subsidiary, AirTran. The airline plans to integrate AirTran with itself by the end of this year.

Southwest Airlines has come a long way since it started operations four decades ago. Having established itself as a top carrier with an expanded national footprint, the company now plans to flag off international flights from nine U.S. cities by the end of this year.

However, the international service will currently have only a modest contribution in Southwest Airlines’ overall performance. In this regard, the carrier will naturally lag way behind its larger rivals like Delta Airlines Inc. (DAL), American Airlines Group Inc. (AAL) and United Continental Holdings Inc. (UAL), which boast strong international operations.

Moreover, Southwest Airlines will face considerable completion from JetBlue, Delta Airlines and American Airlines, who already fly to the Caribbean. However, we believe the carrier should gain from its relatively low fares as compared to its traditional rivals.

Though an apparent international expansion, Southwest Airlines is technically taking over the operations of its subsidiary AirTran, which flies to the Caribbean. However, Southwest Airlines’ international service is here to stay for good as the carrier plans to add 50 international routes going forward.

Southwest Airlines currently carries a Zacks Rank #1 (Strong Buy).

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