Analyst Note| Burkett Huey, CFA |
No-moat rated Southwest airlines reported continued revenue improvement and, excluding the effects of payroll support, posted a roughly breakeven quarter as travel surges with an easing of travel restrictions. After updating our model with second quarter results, we’re decreasing our fair value estimate for the firm to $65 from $66 as a faster pace of revenue recovery was more than offset by higher corporate taxes and increased near term oil price assumptions. Shares look somewhat attractive to us at current prices and we think that Southwest is the best-positioned U.S. airline as it is primarily exposed to the domestic leisure travel market. We believe domestic leisure travel is the most likely form of air travel to be entirely unaffected by the pandemic over the long run.