LUV – Market expectations are for Uniform ROA to compress, and management may be concerned about capacity, MAX groundings, and costs

• Southwest Airlines (LUV:USA) currently trades near recent averages relative to UAFRS-based (Uniform) Earnings, with a 17.6x Uniform P/E. At these levels, the market is pricing in bearish expectations for the firm, and management may be concerned about capacity, the MAX groundings, and meeting their cost targets
• Specifically, management may lack confidence in their ability to sustain recent pretax return on invested capital, and they may be concerned about their ability to achieve their long-term cost targets. Furthermore, they may be concerned about their ability to sustain recent success rates during unexpected event situations, and they may lack confidence in the effectiveness of their rescheduling methods. Additionally, they may be concerned about the timing of Boeing’s software fix for the MAX fleet and about their ability to unground the MAX fleet. Moreover, they appear concerned about the value of the slots they acquired at LaGuardia during 2013 and about their ability to add flights in the New York market. Finally, they may lack confidence in their ability to effectively change their fleet strategy and to manage their short capacity