The air travel industry is extremely competitive, and therefore there are several Southwest Airlines competitors that should be analyzed if you are considering investing in the stock. An integral part of equity research is to identify what the largest competitors of a specific company are.
In order to determine the future outlook of a company, investors need to be able to analyze the competitive landscape of a certain industry. Identifying the competitive advantages of some companies against others allows you to understand correctly how these companies compete against each other.
Overview of Southwest Airlines
Southwest Airlines (NYSE: LUV) is among the largest airlines in the US and the world. The company is responsible for carrying millions of passengers every year. Although the company is focused on the medium segment, it is also well known as a low-cost alternative to some of Southwest Airlines’ competitors. This has been one of the differentiating aspects of the company against its competitors – price.
Although price alone does not determine a company’s competitive advantage, Southwest Airlines is known to have a low pricing strategy, that allows the company to attract those customers that are more price sensitive.
Following the challenges the pandemic presented, Southwest Airlines has been able to return to profitability in 2021. As of 3Q21, the company was able to generate $446 million in net income.
Southwest Airlines has 736 different aircraft in its fleet, and it remains one of the legacy carriers with lower prices. With a current market cap of ~$25.350 billion, Southwest Airlines generated $4.68 billion in revenues during 3Q21, and it is on track to return to its pre-pandemic annual revenue range between $21 billion and $22 billion. In 2022, Southwest is expected to generate $2 billion in net income.
Overview of Southwest Airlines competitors
When we look at some of the main Southwest Airlines competitors we see that the company had been one of the best performing carriers, as evidenced by its high net margins pre-pandemic.
Southwest Airlines margins
Source: Investor Presentation
It should be noted that among the legacy carriers, and the ultra-low-cost carriers, Allegiant Air, and Delta seem to stand out, as some of the most well-run airlines.
Southwest Airlines market share
In order to further understand the competitive landscape in the airline industry, let’s look at the market share data from 2020:
It is clear that Southwest Airlines is one of the largest carriers in the US. The company holds significant importance in the airline industry, and it is the second-largest player. Despite that, it is clear, that there is a large number of Southwest Airlines competitors that are worth mentioning.
Southwest Airlines competitors financial strength
American Airlines Group
- Market cap: ~$11.63 billion
- Revenues in 3Q21: $8.97 billion
- Net income in 3Q21: $169 million
- Fleet size: 864
American Airlines is clearly the largest carrier by market share. However, the company has been struggling, even pre-pandemic. Despite their market share, both Delta and Southwest had much better margins and were able to overcome the challenges of the pandemic faster. Nonetheless, American Airlines Group has been able to achieve modest profitability.
One of the reasons is the company is one of the carriers with the highest debt, and it has the weakest financial situation when we compare balance sheets. This is also the main reason why the company’s share price has not performed as Delta or Southwest for example. It is also the reason why despite having more market share than its competitors, it has a lower market cap. Thus, reflecting the risks associated with an investment in American Airlines.
Delta Air Lines
- Market cap: ~$25 billion
- Revenues in 3Q21: $9.15 billion
- Net income in 3Q21: $1.21 billion
- Fleet size: 843
Delta is also known as one of the most important legacy carriers, and it is certainly one of the most significant Southwest Airlines competitors. In fact, Southwest and Delta are both among the largest 3 carriers in the US.
- Market cap: ~$14.17 billion
- Revenues in 3Q21: $7.75 billion
- Net income in 3Q21: $473 million
- Fleet size: 857
United Airlines is one of the largest carriers in the US and the world. Despite being one of the largest legacy carriers, the company has been struggling with low margins and a considerable amount of debt.
- Market cap: ~$2.37 billion
- Revenues in 3Q21: $922.63 million
- Net income in 3Q21: $14.77 million
- Fleet size: 173
Spirit is the ultra-low-cost carrier with the highest market share. The company is well-known for its low prices. However, it has also been one of the most criticized carriers. Despite that, the company has continued to show a positive financial performance, even after the pandemic.
- Market cap: ~$4.53 billion
- Revenues in 3Q21: $1.97 billion
- Net income in 3Q21: $130 million
- Fleet size: 282
Jetblue is one of the low-cost carriers with the largest market share. Jetblue has a stable financial position, and it remains a very competitive player in the low-cost segment. It is one of the most important Southwest Airlines competitors, and it remains highly competitive.
- Market cap: ~$2.93 billion
- Revenues in 3Q21: $630 million
- Net income in 3Q21: $23 million
- Fleet size: 112
Frontier Airlines is a low-cost carrier with a considerable market share. The company does not compete directly with Southwest in terms of price, but both companies share routes and therefore are in direct competition.
- Market cap: ~$1.98 billion
- Revenues in 3Q21: $744.78 million
- Net income in 3Q21: $9.68 million
- Fleet size: 497
SkyWest Airlines is one of the largest regional carriers. Despite that, SkyWest Airlines has a considerable fleet, and has remained a very competitive carrier in the regional routes that are often avoided by some of the legacy carriers.
- Market cap: ~$3.383 billion
- Revenues in 3Q21: $459.57 million
- Net income in 3Q21: $39.25 million
- Fleet size: 117
Allegiant Air is known as one of the most important low-cost carriers. The company had a stellar performance in 2018 and 2019, posting the highest net margins of the airlines compared to this list. This is certainly an important aspect to note and a sign of the company’s cost-effective strategy.
- Market cap: ~$940.78 million
- Revenues in 3Q21: $508.85 million
- Net income in 3Q21: $14.67 million
- Fleet size: 61
As the name suggests, Hawaiian Airlines operates mainly the routes connecting to the Hawaiian Islands. However, the company has been known to be one of the most interesting carriers around. This is because it dominates the routes connecting to Hawaii. Although Hawaiian Airlines is not a direct Southwest Airlines competitor it is still worth mentioning.
However, Hawaiian Airlines stands out as one of the most well-run airlines on this list. At least when we look at its balance sheet, the company seems to be in a great financial position, especially when compared with its competitors.