(LUV) Southwest Airlines Adds More 737s to Fleet

One of the leading domestic carrier, Southwest Airlines (LUV) ordered 208 Boeing (BA) 737 MAX jetliners worth $19 billion, representing the largest ever order in terms of value and numbers. The deliveries of the new order are expected to begin from 2017, bringing the total order of Southwest to 350 Boeing aircraft for 2012 through 2022. The new orders are in sync with the company’s strategy to replace older fleet with new fuel efficient aircraft.

Southwest already boasts of the largest fleet of Boeing 737 with models – 300, 500 and 700. Following the latest addition, the company is expected to gain significant competitive advantage from market giants like Delta (DAL) and United Continental Airlines (UAL). Apart from this, the new jetliners are also expected to aid the company’s cost structure that is currently weak because of the soaring fuel cost.

Besides flying multiple short, quick trips into the secondary (more efficient and less costly) airports of major markets, Southwest’s successful business model also involves using only one type of aircraft – Boeing 737.

Southwest is upgrading its fleet with the new Boeing Sky Interior and will introduce the new larger Boeing 737-800 in March 2012. The new aircraft will help in adding new destinations as it is efficient for longer haul, high demand markets than the 737-700.

Given the growing demand for low cost airlines in the current economic backdrop, we believe the host of new aircraft orders will help Southwest gain market traction as well as improve its profitability going forward.

We maintain our long-term Neutral recommendation on Southwest Airlines, supported by the Zacks #3 Rank (Hold).

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