Why Is Southwest Stock So Cheap?

Andrew Willis: It’s safe to say Southwest Airlines LUV needs an IT upgrade. We’re modeling more than a billion in related capital and operating expenses over the next three to four years to help overhaul operating systems to prevent another major aviation outage.

The technology bill comes as the airline is already set to spend another billion this year on nonaircraft expenses that we view as catch-up for projects deferred or canceled during the pandemic. But all this spending isn’t necessarily bad. As sector director Brian Bernard points out, there’s a return on investment that comes with these expenses, and we think it currently offsets any effect on our fair value estimate. And from a reputational standpoint, at least they can somewhat blame this one on the weather.

For Morningstar, I’m Andrew Willis.