I bought LUV Thursday and added this morning. I already own AAL and DAL during the Ebola scare and have large positions. I think the current "investigation" will fizzle unless these CEOs are really stupid. The government will have a hard time making a case. Here is an excerpt from a Stifel update:
Investigation Likely Creates Further Headline Risk – Clearly, we have little visibility into what internal emails from airlines will show if that is in fact what the DoJ is interested in seeing, but in terms of what airlines have said publicly and what capacity and pricing trends show, we don’t see much of a case for how the industry has colluded. It’s simply too early in the process and not enough is known about the investigation to gauge the risk; however, we would point out that the last time the DoJ involved itself in the industry was around the American-US Airways merger, and the end result was much different than the DoJ’s initial allegations…
Concern Seems to Be Whether Investigation Will Alter Capacity Plans – We believe investors are concerned that the investigation will make airlines less willing to trim capacity beginning in 4Q, as most investors are expecting, given YTD demand being softer than expected. However, what makes us somewhat comfortable that the investigation will not have an impact is that the forward capacity data is publicly available through published schedules, which supports the view that airlines are not signaling one another but instead developing their schedules independently.
Oil dropping is manna from heaven for the airlines. Regardless, it can be argued that LUV is the cream of the crop and now that it is trading with a forward PE below ten, I look at it was a good value. Below is a link to a good report on Southwest.
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