Shares of Southwest Airlines Co (NYSE: LUV) are down nearly 4.0% on Thursday after Jefferies downgraded the stock to hold, citing “higher exposure to inflationary pressures than peers”.
Incoming CEO responds to Jefferies’ call
On CNBC’s “Squawk on the Street”, Robert Jordan, who is set to take the helm from Gary Kelly next year, agreed that there were additional costs but reiterated that the stock was still worth buying.
The higher costs are almost in totality a product of the fact that we’re underflying. As we add back flying to the network, we’ll grow back into the size of the company. I have no doubt that we’ll get our costs back to our 2019 levels of efficiency.
Jordan also confirmed that Southwest was already seeing strong demand despite corporate travel still down about 50% from 2019 levels. He expects business travel to recover completely by 2023 at the latest.
LUV is now down more than 30% from its high in early April.
CEO Kelly: the worst is behind us
During the same interview with Jim Cramer, CEO Kelly also attributed the current challenges primarily to the global pandemic but expressed confidence that the worst was behind Southwest.
It was a very scary time, but we have 50 years of legacy and are built on a very strong foundation. We’re now in a very strong position and looking ahead. I think our last losing quarter is behind us.
He particularly appreciated the federal government payroll support that helped preserve jobs amidst the COVID-19 crisis. According to Kelly, Southwest has a list of new initiatives to strengthen its top line.
The Texas-based low-cost airline also introduced a new fare type this week.
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