This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

United's Biggest Hub Faces Attack by Southwest

Bob McAdoo, airline analyst for Los Angeles-based Imperial Capital, said it is unlikely that Southwest's projected international operation in Houston would have a major impact on United, but it is understandable that United would be opposed.

"In terms of impacting United shares, it won't," McAdoo said. "It's such a small piece of the pie, strung out over many years because it will take Southwest a long while to build service. From a shareholder point of view, it's so far down the road that I'm not worried about it yet."

Still, he said, "If I open up a store across the street from a Starbucks (SBUX), you never see it in the Starbucks numbers, but Starbucks would still prefer I wasn't there."

The airport's study projects that Southwest would initially serve five international cities from Hobby: three in Mexico and the capitals of Costa Rica and San Salvador. Longer term, the destinations would include six cities in Mexico, three in Central America, Bogota and Caracas. Currently, Southwest Hobby service includes 134 daily departures to 34 domestic cities.

McAdoo said questions remain about Southwest's intent because the airline has been evolving since it ran out of new U.S. destinations big enough to materially impact its earnings. Most Mexico-Houston markets seem small for Southwest's normal operational mode of providing frequent service on 737 jets.

"You don't know what Southwest is going to look like," McAdoo said. "They are learning to fly internationally. They now have different sizes of airplanes (after merging with AirTran). Maybe, in these markets, they will fly once a day. The point is, you used to know what Southwest was going to do, and I don't think you do anymore. They are trying stuff they've never tried before."

Whatever Southwest plans, it is clear that Houston faces a tough choice. Of course, new service is typically desirable for a city, and new service from Southwest can bring lower fares. But at the same time, a major airline hub airport is perhaps the most attractive asset a city can provide in terms of stimulating commerce.

US Airways (LCC)President Scott Kirby has said that United's Houston hub is the third most profitable major airline operation in the U.S., in terms of profit margin. That means it is a place where the hub carrier will continually be willing to commit resources.
2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
LCC $0.00 0.00%
LUV $37.41 -0.82%
UAL $57.23 -0.10%
AAPL $110.63 -1.50%
FB $88.18 -1.90%

Markets

Chart of I:DJI
DOW 16,359.16 +7.78 0.05%
S&P 500 1,951.92 +3.06 0.16%
NASDAQ 4,742.8470 -7.1320 -0.15%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs