RealTime IT News

Hidden Net Play Flying High

Quick. Name a company besides America Online that generated more than a billion dollars in online sales last year and boasts profitability. The "Wal-Mart of the Internet" e-tailer Amazon.com comes close with an impressive $1.7 billion in 1999 revenues; that is, if you look past its hemorrhaging losses of $700 million. Online portal giant Yahoo! also gets an honorable mention showing actual profits, but with just $600 million in sales on a modest $60 million in net income, close only counts in horseshoes. Instead, the answer can be found by looking to the skies - try Southwest Airlines .

Southwest Airlines an Internet play? Well, the deep discount airline may not come packaged in a sexy dot-com wrapper, but the company's Web site did manage to collect more than $1 billion in passenger revenues since the turn of the millennium, a 111% increase from a year ago. Online sales are accounting for nearly 30% of Southwest's total passenger revenues and Bear Stearns analyst, Robert A. LaFleur, sees that figure doubling over the next five years. While rival airlines end up moving just 5% of total sales over the Web, that tally can be somewhat misleading since Southwest has a virtual stranglehold on selling tickets through its own site rather than partnering with upstart e-travel agents like Travelocity , priceline.com , or Expedia .

Regardless, any way you slice it, Southwest's online initiative isn't anything to sneeze at. The company's CFO predicts that the efficiencies of selling on the Internet will translate into roughly $80 million in savings to this year's bottom line alone. Not bad for a decidedly offline company who took a chance on an unproven medium back in 1996, well ahead of other brick-and-mortar rivals, with a rough-around-the-edges Web site sporting a giant image map of a ticket counter. That straightforward approach in cyberspace was as successful with an increasingly Web savvy audience as its no-frills earthy style was in the air. It also boosted enthusiasm from investors who've rewarded Southwest's stock price with a rich premium relative to competing airline stocks.

In anticipation of e-commerce's inaugural holiday season two years ago, investors ferreted out Federal Express as a hidden Internet play. Surmising that the express shipping giant was undervalued when compared to frothy pure play Internet stocks, investors furiously bid shares of its parent company FDX Corp. (now FedEx Corporation ) up to its all-time high. With lofty predictions for retail sales on the Web being trumpeted by upstart research firms, investors saw Net gold for the tech-savvy carrier catering to instant gratification-conscious consumers. Whereas the shipping industry is competitive, the airline industry is downright cutthroat.

Despite peaks and valleys brought on by seasonal travel and fluctuating fuel prices, Southwest has enjoyed explosive growth that's outpaced its rivals and has predictably outperformed most airline stocks traded on the Big Board. The company already sits squarely at its 52-week high, so don't expect a repeat FedEx moonshot performance. But Southwest does still have plenty of room yet to grow, and if you're looking for a long-term buy-and-hold with a dash of dot-com and some solid upside prospects, LUV warrants a looksee.

Any questions or comments, love letters or hate mail? As always, feel free to forward them to kblack@internet.com.

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