Southwest Airlines faces risks from fluctuating fuel prices, impacting operating expenses. Fuel hedging strategies, while intended to mitigate risk, may not fully protect against price volatility. Credit risk exists with counterparties in fuel derivative contracts, potentially leading to losses if counterparties default. The company is involved in numerous legal proceedings, including class action lawsuits and investigations, with uncertain outcomes and potential fines or penalties. Aircraft delivery delays from Boeing pose a risk to capacity and operational plans. A working capital deficit exists, with current liabilities exceeding current assets.
Financial Upside
Southwest anticipates increased operating revenues in the fourth quarter of 2024, driven by record passenger and other revenue. The company projects improved operating margins and return on invested capital by 2027. Fleet modernization, including new, more fuel-efficient aircraft, is expected to improve fuel efficiency and lower costs. Strategic initiatives like assigned seating, premium options, and redeye flights aim to enhance the customer experience and drive revenue. The company plans share repurchases to return value to shareholders.
