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Could United Boot Southwest From S&P 500?  
User currently offline1337Delta764 From United States of America, joined Oct 2005, 6439 posts, RR: 2
Posted (10 months 2 weeks 6 days 20 hours ago) and read 2044 times:

With the recent news of Delta joining the S&P 500, I was thinking, looking at market caps for various U.S. airlines, presently United Continental Holdings (NYSE: UAL) has a higher market capitalization at $11.46B than Southwest Airlines at $9.7B. It is a bit surprising that United Continental Holdings wasn't added to the index. Perhaps they will be added in the next selection.

So, is there a chance of United possibly booting Southwest from the S&P 500?

[Edited 2013-09-10 10:14:16]


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4 replies: All unread, jump to last
 
User currently offlinecatiii From United States of America, joined Mar 2008, 3029 posts, RR: 4
Reply 1, posted (10 months 2 weeks 6 days 19 hours ago) and read 1878 times:

There's 5 main criteria S&P uses when looking for Index candidates: trading analysis, liquidity, ownership, fundamental analysis, market capitalization, and sector representation. Since market cap is just one of the criteria, I don't think UA necessarily will boot out anyone based solely on that. In fact, given the sector representation criteria, my sense would be that Southwest would likely stay in because they provide a diverse alternative to DL.

User currently offlineCoronado From United States of America, joined Jun 1999, 1169 posts, RR: 2
Reply 2, posted (10 months 2 weeks 6 days 18 hours ago) and read 1769 times:
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I don't think it is a question of booting LUV. LUV is still by far the strongest airline balance sheet wise due to the accumulation of profitable years. They pay a dividend.

I think if United Continental keeps improving, becomes more consistently profitable, perhaps starts recognizing a dividend, they should be able to get a spot on the S&P 500 replacing some other company that may get acquired, taken private and taken off the index.

There is no reason there could not be more than 2 airlines on the S&P 500, heck if more of them become ''investment grade'' even if just merely 'low investment grade' you could see 3 or 4 airlines on the index as long as they become sufficiently and consistently profitable over time for the market to award them a higher market capitalization, while still being a balanced component of the index.

I can envision in the next couple years some mergers among pharmaceutical companies which are a big component of the S&P 500, opening up slots for companies in other industries such as airlines, as long as they are sufficiently, consistentely profitable and able to maintain a high market cap.

I think in the case of United they will probably want to see some more progress on the merger and some sign that the promised synergies are really materializing. Let's face it the lack of unified work contracts throughout the employment base and the need to set up separate satellite bases in towns such as Denver to support sCO staff suggests that there is still work to be done.

One of the criteria by the S&P committee is profitability. UAL most current EPS (earnings per share) is a negative 1.90. whereas Deltas and Southwests EPS are significantly profitable.

[Edited 2013-09-10 12:07:49]


The Original Coronado: First CV jet flights RG CV 990 July 1965; DL CV 880 July 1965; Spantax CV990 Feb 1973
User currently offlinesccutler From United States of America, joined Jan 2000, 5490 posts, RR: 28
Reply 3, posted (10 months 2 weeks 6 days 16 hours ago) and read 1550 times:

(Chuckle).

Remember, shortly after 9/11, when Southwest's market cap was greater than the rest of the US airlines - combined?



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User currently offlineEA CO AS From United States of America, joined Nov 2001, 13517 posts, RR: 62
Reply 4, posted (10 months 2 weeks 6 days 15 hours ago) and read 1406 times:
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Quoting Coronado (Reply 2):
LUV is still by far the strongest airline balance sheet wise

Is it?

Quoting Coronado (Reply 2):
They pay a dividend.

So does ALK.

Quoting Coronado (Reply 2):
There is no reason there could not be more than 2 airlines on the S&P 500, heck if more of them become ''investment grade''

Ask LUV shareholders who are ticked at the dismal performance of the stock over the past 10 years if they still consider it "investment grade."



"In this present crisis, government is not the solution to our problem - government IS the problem." - Ronald Reagan
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