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Shares of

Southwest Airlines

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Northwest Airlines


jumped Wednesday on a pair of upgrades.

Deutsche Bank analyst Susan Donofrio upgraded Southwest to buy from hold, citing its relative strength in fare prices and rapid growth plans. Also, Credit Suisse First Boston analyst Jim Higgins upgraded Northwest to outperform from neutral after a positive meeting with management last week.

Despite lowering her fourth-quarter EPS estimate, Donofrio told investors that Southwest was compelling after a recent pullback and that she could see 25% upside in the next 12 months. And while


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have had trouble raising fares, Donofrio said Southwest has been able to increase overall fare levels, another reason to consider buying shares.

"Southwest has experienced a slow yet steady rise in their overall fare levels, which management believes is likely to continue," said Donofrio. "We note that this is in contrast to JetBlue's announcement on Friday that their average fares have been declining due to capacity additions in their markets."

Cost pressures in the fourth quarter due to higher labor and maintenance expenses caused Donofrio to cut her earnings estimate below current Wall Street expectations, but the analyst argued that cost pressures will ease in 2004. While unit costs are expected to be up 4% in the fourth quarter, Donofrio said they'll be up just 2% in 2004.

Furthermore, the analyst said Southwest will return to rapid growth, boosting 2004 capacity by as much as 8% vs. a 4% increase in 2003, which will bolster earnings to 65 cents a share next year. Based on 30 times projected 2004 earnings, the analyst set a price target of $20 on Southwest shares, which were up 36 cents, or 2.3%, to $16.06 in reaction to the upgrade.

Elsewhere, CSFB came out with positive comments on Northwest after meeting with management last week, telling investors that the company will benefit from travel to Asia now that SARS has largely blown over.

"Relative to our expectations going in, the session with Northwest was more upbeat than any of the other three meetings we had with


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and Continental," said CSFB's Higgins. "Northwest's November revenue per available seat mile was much better than Continental's 4.5% to 5.5%.

Management said it 'looked nothing like theirs.'"

Specifically, Higgins cited strong holiday bookings, a sensible fare pricing model and a strong cargo operation as bright spots for Northwest. As far as capacity, Northwest's management plans to be cautious in 2004, keeping capacity flat with 2003, while also moving to reduce costs by cutting wages and making operations more efficient. Shares were up 26 cents, or 2.3%, to $11.56.

CSFB has had business relationships with Northwest and intends to seek more over the next 12 months. Deutsche Bank, which upgraded Southwest, has had business relationships with the company and intends to seek more over the next 12 months.