I'm Betting on Southwest Airlines (LUV) Going DOWN

[Recyclersteve]

A little tidbit on Southwest Airlines (Ticker: LUV), in case you are planning on flying with them. Today alone they canceled over 2,500 flights. The next highest: Spirit Air with only 87. This is per travel site FlightAware.

Even when the weather gets better, they are still projecting to have isses. They are blaming a good portion of this on outdated phone and computer systems, which are little changed from the 1990's.

In reading about it, I was so disappointed that I have shorted their stock, betting it will actually fall further. This is sad, since I have flown Southwest many times over the years and have always thought highly of them. Until now.

Southwest had a much smaller (but still substantial) meltdown in October, 2021. That one cost them $75 million. Then CEO Gary Kelly said they made appropriate changes to solve the issue. Keep in mind the '21 issues involved 2,000 flights canceled in a 4-day period. They've already canceled 2,500 flights TODAY ALONE and conceded they will only be flying at a bit over 1/3 capacity as they return to normalcy.

The P/E ratio is still above 25, so this stock is still expensive. Even if this stock is cut in half, it won't be cheap. They are scheduled to announce earnings on 1/26/23. I expect them to announce big expenses related to the travel delays. That gives them about a month to size up the damage.

The stock has very low short interest (less than 2%) right now. I'd expect that to become perhaps 10% or more over the next month or so. Think about all the people in the financial industry who experienced the meltdown firsthand. You don't think those with hedge funds will short the stock and tell their friends about it, just like I am doing?

For those who have never shorted a stock before, consider doing a small amount of shares. You need to have a margin account set up to do this, even if you aren't actively using margin.

Southwest's stock is being treated like it is still a much loved company. They need major changes quickly. Too bad the late Herb Kelleher isn't running the show. He was great.

[68Camaro]

I would be surprised if the stock doesn't drop more. The tell for the future (I have historically flown SWA a lot) is whether or not they actually learn from this or if they just butter over the issues. Past ability to resist this type of collapse, when they were a quarter the size, does not mean they are executing their plan badly, but it does suggest that their plan stops working when they get to a certain size and there is a large event that covers most of their route map. They clearly need to be prepared to regress to a Plan B at a certain point of the event - and maybe that is a shift to a temporary pseudo hub and spoke system until they get their planes repositioned - regardless they need an actual plan for how to recover from a complete loss of the synchronous movement that their baseline requires, until they can recover synchronicity.

[Recyclersteve]

Anything they try to do to appease customers will cost millions.

Even if they gave customers open ended tix for free, there are probably many who are so upset they wouldn’t even use the new free tix. Also, they would almost certainly not be transferable.

The damage to reputation would likely last 1 to several years. And then they have to overcome all this while we are likely headed to a recession. That is a tall order. All that said, eventually they should be fine. I absolutely DON’T EXPECT bankruptcy.

[Cu Penny Hoarder]

They also went woke a while ago... which means they will eventually go broke.

[Recyclersteve]

I just shorted more of LUV stock today.