Southwest Airlines, buoyed by strong 1Q2014 results, resurrects confidence in meeting ROIC targets

For the last couple of years a pre-tax 15% return on invested capital (ROIC) has eluded Southwest Airlines. But with a 12M trailing ROIC of 14% as of 31-Mar-2014, the airline is exhibiting a new-found confidence that 2014 may just be the year when it finally reaches its return goals.

However, as in the past the carrier has given itself some buffer in case those targets begin to fade during the course of the year as it explains its return estimates are based on continued favourable fuel cost and a relatively stable economy.

Southwest's assessment of finally reaching its return goals is built on a solid financial performance during 1Q2014 and a positive outlook for the current quarter. But two well-entrenched challenges could still create some headwinds for the carrier - cost creep and labour strife.