Southwest Airlines Looks To Add 3 Mexican Destinations

In a bid to expand, Dallas-based low-cost carrier Southwest Airlines Co. (NYSE:LUV) has filed an application with the U.S. Department of Transportation (DOT) for permission to fly to three more Mexican cities. The carrier intends to operate non-stop flights between Los Angeles and the Mexican destinations – Cancún, San José del Cabo/Los Cabos and Puerto Vallarta – from Nov 6, 2016, assuming that it gets the approval by Jun 30.

The carrier intends to operate two daily flights to Cancún and San José del Cabo. Only one flight connecting Los Angeles and Puerto Vallarta will operate per day. Meanwhile, we appreciate the carrier’s move to gain approval for these highly popular tourist spots as it will open up significant commercial potential.

Southwest Airlines has in fact requested the DOT for extra-bilateral authority so that it can operate the additional flights even before the liberalized aviation deal between the U.S. and Mexico materializes.

If Southwest Airlines manages to gain the approval for the beach destinations in Mexico, competition on these routes will intensify manifold which may lead to lower ticker fares. Economic analysis firm, Campbell-Hill Aviation Group believes that fares may reduce in excess of 20% from the current levels while traffic is likely to increase by more than 500,000 passengers annually. The firm further predicts annual savings to the tune of $50 million from these routes.

Further, it is to be noted that an approval would mark the first direct connection between Los Angeles and Mexico, as far as Southwest Airlines is concerned. Currently, the carrier serves four Mexican destinations from eight U.S. cities. We are impressed with the carrier’s route expansion efforts. Meanwhile, capacity (available seat mile) is projected to grow in the band of 5% to 6% in 2016 over 2015 levels.

Zacks Rank & Stocks to Consider

Southwest Airlines currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the airline space include SkyWest, Inc. (NASDAQ:SKYW) , Air France-KLM SA (OTC:AFLYY) and GOL Linhas (NYSE:GOL) .