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Southwest Bumps Into New Trouble Due to Flight 1380 Incident

Zacks Equity Research

Southwest Airlines Co. LUV is faced with a new trouble related to the April 17 flight 1380 incident. Per media reports, a group of eight passengers aboard the Southwest flight in April has filed a lawsuit against the carrier in the Supreme Court of New York.

The tragic incident in April forced the carrier to make an emergency landing at the Philadelphia International Airport due to an engine failure causing a fan blade to detach. Consequently, one of the passengers died while seven others were injured.

Following the fatal event, Southwest has been put under rigorous scrutiny and the federal regulators are still investigating the events which induced the engine explosion.

The lawsuit filed on Wednesday has accused the carrier of negligence in providing proper care to its passengers to the point of even risking their lives. The lawsuit claims that Southwest has not made sufficient efforts to repair damaged aircraft and/or replace the unsafe ones for a safer travel.

The defendants in the case are Southwest and the Boeing 737 plane (involved in the fatal accident) manufacturer, The Boeing Company. Companies involved in manufacturing the engine are also defending the charge.

Meanwhile, the U.S. Department of Transportation’s (DOT) inspector general said that it is opening a review of the Federal Aviation Administration's (FAA) oversight of Southwest and is auditing the process. The FAA claims that its oversight system is effectively designed to allow earlier identification of potential risks so that the same does not result in serious issues and ensures that necessary actions are taken.

The series of events following the tragic incident undoubtedly places Southwest in a tight spot and raises questions regarding its safety measures. This recent event will aggravate the carrier’s already low demand and worsen its ongoing troubles. (Read more: Southwest Trims View on Soft Bookings & Spike in Oil Prices).

Price Performance

Southwest’s price performance in the last six months also highlights the above drab scenario. Shares of the company have lost 19.4% compared with the industry’s 13.6% decline.


Zacks Rank & Key Picks

Southwest holds a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the broader Transportation sector are GATX Corporation GATX, SkyWest, Inc. SKYW and Expeditors International of Washington, Inc. EXPD.  While GATX and SkyWest carry a Zacks Rank #2 (Buy), Expeditors sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past six months, shares of GATX and Expeditors have rallied more than 17% and 18%, respectively, while SkyWest stock has gained above 5%.

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Southwest Airlines Co. (LUV) : Free Stock Analysis Report
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