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Southwest Airlines Nov Traffic Drops

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Dallas, Texas-based Southwest Airlines Co. (LUV) posted a drop in traffic for Nov 2013. The traffic – measured in revenue passenger miles (RPMs) – came in at 8.07 billion, down 1.0% from 8.15 billion recorded in the comparable month a year ago. On a year-over-year basis, consolidated capacity (or available seat miles/ASMs) inched up 0.8% to 10.26 billion. The load factor or percentage of seats filled by passengers increased to 78.6% from 80.0% in Nov 2012.

For the first eleven months of this year, Southwest generated RPMs of 95.37 billion (up 0.7% year over year) and ASMs of 119.50 billion (up 1.6% year over year). Load factor, however, moved down to 79.8%, reflecting a year-over-year decline of 70 basis points.

Notably, the decrease in PRASM (passenger revenue per available seat mile) remains a drag for the month. For Nov 2013, PRASM is estimated to have decreased around 6% from Nov 2012.

Recently, Southwest Airlines acquired 12 pairs of slots at the LaGuarida (:LGA) airport in New York from U.S. Airways Group Inc. (LCC) and American Airlines Inc. This transaction was part of the merger deal between the carriers. American Airlines has already leased out 10 slots at LGA to Southwest Airlines.

Southwest Airlines aims to initiate services at LGA from May 2014. The company is also looking to win slots at Washington Regan National Airport (DCA), which is to be divested by American Airlines and U.S. Airways.

Southwest Airlines’ slot win at New York provides it scope for expansion in the city, which remains a competitive edge for rivals JetBlue Airways Corp. (JBLU) and Delta Air Lines Inc. (DAL).

However, the good news was followed by the poor operational performance of the carrier, which needs to be dealt with properly to cope with the challenges that will come from the merger of American and U.S. Airways.

With its cost-efficient business model, the company targets to expand its network through the integration of AirTran aircraft and the addition of new domestic and international destinations. To accommodate international flights to the Caribbean, Mexico and the northern part of Latin America, the company is building a new facility at the William. P. Hobby international airport in Houston.

These initiatives along with the winning of slots at LGA are expected to create tailwinds for the company going forward. Southwest Airlines currently holds a Zacks Rank #3 (Hold).

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