March 17, 2007

Raymond James Sees Growth for Southwest

Raymond James Upgrades Southwest Airlines on Expectations of Growing Ancillary Revenue

NEW YORK (AP) -- Shares of Southwest Airlines Co. moved higher Friday, after Raymond James upgraded its stock on expectations of growing revenue from sales of items other than airplane seats.

The Dallas-based low-cost carrier's shares added 10 cents to $14.99 in afternoon trading on the New York Stock Exchange. It bucked an overall downward trend for airline stocks, as the Amex Airline Index dropped 1.1 percent due to rising crude oil prices and the effects of an East Coast snowstorm.

Raymond James analyst James D. Parker upgraded Southwest to "Outperform" from "Market Perform," writing in a research report that the company has great potential in marketing ancillary services, such as car rentals and hotels. It could also begin onboard sales of tickets for theater shows, museums or other items.

Such ancillary sales make up only about 2 percent of Southwest's revenue, compared with 15 percent for Europe's largest low-fare carrier, Ryanair, Parker wrote.

"Ancillary sales, we believe, are on the verge of becoming pervasive in the airline industry because it enables airlines to diversify their revenue bases away from the commodity pricing of airline seats and to take advantage of the leverage they have to sell higher margin items to captive audiences," he wrote.

Parker also cited Southwest's recent stock decline, saying it looks like a good company with its shares "on sale" after a 17 percent decline over the past nine months.

Copyright © 2007 The Associated Press. All rights reserved.
Source: Yahoo! Finance

No comments: