Should Investors Retain LUV Stock Post Updated Q1 Outlook?

Core Viewpoint - Southwest Airlines Co. (LUV) has announced strategic growth plans and financial targets, alongside a share buyback program, while facing weaker demand in Q1 2025 [1][2] Financial Performance - LUV's Q1 2025 capacity is expected to decline by 2% year-over-year, with previous guidance indicating a decline of 2-3% [3] - Revenue per available seat mile (RASM) is anticipated to increase by 2-4% year-over-year, down from a prior forecast of 5-7% due to reduced bookings and demand [4] - Economic fuel cost per gallon is now expected to be between $2.35 and$2.45, lower than the previous estimate of $2.50 to$2.60, which should positively impact the bottom line [5] Strategic Growth Plans - LUV is focusing on revenue management actions, including network optimization and marketing evolution, with initiatives such as assigned seating and a co-brand agreement with Chase [10] - The airline has updated its bag fee policy, maintaining two free checked bags for certain members while introducing fees for others [11] Liquidity and Shareholder Returns - LUV ended Q4 2024 with cash and cash equivalents of $7.50 billion, significantly higher than its debt level of$1.63 billion, indicating strong liquidity [12] - The company has completed a $1 billion share repurchase and plans to accelerate its remaining$1.5 billion buyback by July 2025 [15] Market Performance - LUV shares have gained 11% over the past six months, outperforming both the Zacks Airline industry and the S&P 500 [16] - The stock is trading at a discount compared to the industry, with a forward 12-month price-to-sales ratio below its five-year median [18] Cost Pressures - Operating expenses rose by 5% in 2024, with salaries and benefits increasing by 9.8%, and LUV expects a 6% increase in CASM (excluding fuel) for Q1 2025 [20][22]