Southwest Should Take Off

The airline industry has historically been a lousy one to invest in. It’s sensitive to the economy, capital-intensive, highly regulated and hypercompetitive. Poor management decisions have led to numerous airline bankruptcies over the years. But Southwest Airlines (NYSE: LUV) has remained profitable for 46 consecutive years — even now, despite the grounding of its 737 Max planes.

This isn’t as bad as it seems: Southwest should eventually receive substantial compensation from Boeing to offset its lost profits — most likely in the form of discounts on future aircraft deliveries. And the aircraft shortage has forced Southwest to make tough choices about which markets are working and which ones aren’t.

Meanwhile, Southwest recently posted some record results in its third-quarter earnings report, with net income up 7% over year-ago levels. There’s a lot more to like about this airline. Start with its business model of simplifying by primarily using a single kind of plane — the Boeing 737 — and favoring direct point-to-point flights instead of using industrystandard hub airports for connections.

Southwest’s dividend recently yielded 1.2%. It’s growing rapidly, too, having tripled over the last five years. If you can handle some volatility from the industry, give Southwest some consideration as a long-term investment. (The Motley Fool owns shares of and has recommended Southwest Airlines.)