You Are Now Free to Board Southwest Airlines

Normally, the last stock I would suggest owning is an airline stock. Airlines
usually are loaded with debt, are at the mercy of the economy as well as fuel
prices, and any kind of terrorist incident could crater the entire sector.
Except for one stock, that is. Southwest Airlines (NYSE: LUV ) has survived
through thick and thin. Actually, they havent just survived, they have thrived.
The primary reason for this will surprise you. Its because Southwest isnt in the
airline business. Its in the freedom business (You are now free to move about
the country). That concept of freedom is how the companys founder, Herb
Kelleher, reimagined airline travel. He understood right from the beginning that
if he could accomplish this, and also make his employees feel like partners in
the business, he would gain an advantage on competitors like AMR s (NYSE: AMR )
American Airlines, United Continental Holdings (NYSE: UAL ) United subsidiary
and Delta Air Lines (NYSE: DAL ). Both concepts worked. As for freedom, when my
JetBlue (NASDAQ: JBLU ) plane from Vegas to Burbank was delayed three hours, I
pulled up Southwests website, bought a ticket and grabbed an even earlier flight
via standby because Southwests Vegas-Los Angeles route is so well managed and
built out that I had the freedom to do it! Meanwhile, despite 80% of Southwest
employees being unionized, there never has been a labor action. Thats because of
Southwests corporate culture of putting its employees first. This culture
translate into a successful business a happy employee performs beyond
expectations. That translates into a better experience for fliers. The American
Customer Satisfaction Index consistently recognizes Southwest Airlines as
leading the industry in customer satisfaction. That satisfaction translates to
brand loyalty. Southwest doesnt even need its frequent flyer program. That
brings us to the bottom line. The company has posted an annual profit for 36
consecutive years and came roaring back in 2010, posting a profit of $459
million versus only $99 million in 2009. This is in stark contrast to the big
boys, all of whom have mostly gone bankrupt, filed for bankruptcy and later
emerged from it, or have been on the brink of it. Would you believe that an
airline an airline has more cash than debt? Southwest has $4.37 billion in
cash vs. $3.24 billion in debt. No other airline has that luxury. Southwest has
$1.4 billion in free cash flow over the trailing 12 months, beating all of its
competitors. AMR actually is cash flow negative. The stock is dirt cheap. It has
lost 50% of its value during the past five years. At a price of $8 per share,
its approaching its financial crisis panic low of $5.89. Things are much better
economically today than back then. The stock has had its share of significant
dips, but the ride has been far less turbulent over the past 10 years than its
competitors. On an enterprise value-to-EBITDA ratio which is the best way to
value an airline the company trades at 3.77. No other airline is close, save
UAL, which is at 3.1. However, Southwests net margins are 3.71% to UALs 1.22%,
and it has a return on equity of 7.87%, whereas UALs is negative. You are now
free to buy the stock. Disclosure: Lawrence Meyers does not own shares in any
company mentioned.