Why Is Southwest Stock So Cheap?

The airline has a big bill ahead, but it’s not all a loss.

Andrew Willis 26 January, 2023 | 4:48AM
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Andrew Willis: It’s safe to say Southwest Airlines (LUV) needs an IT upgrade. We’re modelling more than a billion in related capital and operating expenses over the next three to four years to help overhaul operating systems to prevent another major aviation outage.

The technology bill comes as the airline is already set to spend another billion this year on non-aircraft expenses that we view as catch-up for projects deferred or cancelled during the pandemic. But all this spending isn’t necessarily bad.

As sector director Brian Bernard points out, there’s a return on investment that comes with these expenses, and we think it currently offsets any effect on our fair value estimate. And from a reputational standpoint, at least they can somewhat blame this one on the weather.

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Southwest Airlines Co28.77 USD1.37Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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