Why Southwest Stock Is Flying Higher Today

Key Points

• Southwest shares are getting a lift from Delta, which reported better-than-expected second-quarter results.

• While Delta's commentary on overall demand is promising, Southwest investors would be wise to consider the differences between the two airlines and wait to hear from Southwest management directly.

• 10 stocks we like better than Southwest Airlines ›

Delta Air Lines provided a surprisingly strong outlook for the second half of the year, and the entire airline sector is taking off as a result. Shares of Southwest Airlines (NYSE: LUV) traded up 7% as of 11:30 a.m. ET following Delta's strong report.

Image source: Southwest Airlines.

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Demand trends appear strong

There is a lot of investor uncertainty heading into airline earnings season. Although results came in largely as expected three months ago, growing concerns about the impact of inflation and tariffs on consumers kept many investors on the sidelines.

Delta, historically the first airline to report, provided reason to get excited. Delta topped Wall Street estimates and reinstated full-year guidance above expectations, saying that demand is holding up well despite macro headwinds.

On Thursday, investors sent the entire airline sector higher, betting that what Delta is seeing reflects well on what other carriers will report in the weeks to come.

Is Southwest a buy?

Delta's results are positive, but investors interested in Southwest should still remain cautious. Southwest is in the early stages of a transformation that involves eliminating perks such as no bag fees, and it is possible there will be consumer backlash to those changes.

Also, while overall demand held up strong for Delta, the main cabin was much weaker than premium and business traffic. That could spell trouble for Southwest, which has historically relied more on no-frills travel than its rivals.

The enthusiasm is understandable, but Southwest investors would be wise to hold out for company-specific color from management before hopping on board.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines and Southwest Airlines. The Motley Fool has a disclosure policy.