How Does The Current Performance of Southwest Airlines Stock Compare With The 2008 Recession?

LUV: Southwest Airlines logo
Southwest Airlines

Southwest Airlines stock (NYSE: LUV) currently trades at $27 per share, more than 55% below its level in April 2021, and it can see higher levels over time. Southwest Airlines saw its stock trading at around $36 in early June 2022, just before the Fed started increasing rates, and is now 26% below that level, compared to 40% gains for the S&P 500 during this period. Our detailed analysis of Southewest’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.

This underperformance of Southwest’s stock lately can be attributed to slowing sales growth, partly due to lower than expected leisure passenger volume and the impact of fewer airplane deliveries by Boeing, amid its ongoing safety issues. Looking at a slightly longer term, LUV stock has suffered a sharp decline of 45% from levels of $45 in early January 2021 to around $25 now, vs. an increase of about 40% for the S&P 500 over this roughly three-year period.

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Notably, LUV stock has underperformed the broader market in each of the last three years. Returns for the stock were -8% in 2021, -21% in 2022, and -14% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that LUV underperformed the S&P in 2021, 2022, and 2023. In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector including GE, CAT, and UNP, and even for the megacap stars GOOG, TSLA, and MSFT.

In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could LUV face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months — or will it see a recovery?  Returning to the pre-inflation shock level means that LUV stock will have to gain more than 2x from here. However, we do not believe that will materialize any time soon, and estimate Southwest Airlines’ valuation to be around $31 per share, implying over 15% gains. Our forecast is based on 0.7x sales for Southwest, aligning with the stock’s average over the last two years.

2022 Inflation Shock
Timeline of Inflation Shock So Far:

  • 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
  • Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply.
  • April 2021: Inflation rates cross 4% and increase rapidly.
  • Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process.
  • June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from peak levels.
  • July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline.
  • October 2022 – July 2023: Fed continues rate hike process; improving market sentiments helps S&P500 recoup some of its losses.
  • Since August 2023: Fed has kept interest rates unchanged to quell fears of a recession, and it is prepared for rate cuts in 2024.

In contrast, here’s how LUV stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

LUV and S&P 500 Performance During 2007-08 Crisis

LUV stock declined from nearly $15 in September 2007 (pre-crisis peak) to below $6 in March 2009 (as the markets bottomed out), implying it lost over 60% of its pre-crisis value. It recovered post the 2008 crisis to levels of around $11 in early 2010, rising about 95% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

LUV Fundamentals Over Recent Years

Southwest Airlines’ revenue fell sharply from $22.4 billion in 2019 to just $9.0 billion in 2020 as the Covid-19 outbreak hit the airline industry hard. Revenues improved gradually thereafter to $26.1 billion in 2023, with a recovery in travel demand. Southwest Airlines’ revenue passenger miles (RPM) grew 32% between 2021 and 2023, while passenger revenue per available seat mile (PRASM) also grew 30% over this period. Despite higher revenue, reported earnings decreased from $1.64 in 2021 to $0.78 in 2023 due to higher fuel and other operating costs, weighing on its operating margin. The company’s fuel costs surged 87% over the same period.

Does LUV Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

Southwest Airlines’ total debt declined from $12.2 billion in 2020 to $9.2 billion in 2023, while its total cash decreased from around $13.3 billion to $11.5 billion over the same period. The company also garnered $2.4 billion in cash flows from operations. Given that Southwest Airlines is net debt negative, it is in a comfortable position to meet its near-term obligations.


With the Fed’s efforts to tame runaway inflation rates helping market sentiments, we believe Southwest Airlines (LUV) stock has the potential for solid gains once fears of a potential recession are allayed. That said, the pressure on the company’s operating margin due to elevated fuel and other costs, clubbed with fewer deliveries from Boeing, remains a significant risk factor to realizing these gains.

While LUV stock may have some room for growth, it is helpful to see how Southwest Airlines’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

 Returns May 2024
MTD [1]
YTD [1]
Total [2]
 LUV Return 3% -7% -46%
 S&P 500 Return 5% 11% 137%
 Trefis Reinforced Value Portfolio 7% 7% 657%

[1] Returns as of 5/27/2024
[2] Cumulative total returns since the end of 2016

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