Southwest Airlines Company (LUV)

Interest coverage

		Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Earnings before interest and tax (EBIT)	US$ in thousands	224,000	1,017,000	1,721,000	-3,816,000	3,075,000
Interest expense	US$ in thousands	241,000	316,000	450,000	336,000	118,000
Interest coverage		0.93	3.22	3.82	-11.36	26.06

December 31, 2023 calculation

Interest coverage = EBIT ÷ Interest expense
= $224,000K ÷ $241,000K
= 0.93

Interest coverage is a financial metric that indicates a company's ability to cover its interest payments with its operating income. A higher interest coverage ratio signifies a stronger ability to meet interest obligations.

Looking at the data provided for Southwest Airlines Co, we observe a significant improvement in the interest coverage ratio over the years. In 2019, the company did not report a specific interest coverage ratio. However, in 2020, the interest coverage ratio was -16.96, indicating that the company's operating income was insufficient to cover its interest expenses. This negative ratio suggests financial distress and a heightened risk of default.

In 2021, there was a slight improvement with an interest coverage ratio of -2.96, but the company still struggled to cover its interest payments. However, in 2022, Southwest Airlines saw a substantial improvement in its interest coverage ratio to 12.11, indicating that the company's operating income was more than sufficient to cover its interest expenses, reflecting a stronger financial position.

As there is no data available for 2023, it is challenging to provide a current assessment. However, the positive trend in interest coverage from 2020 to 2022 suggests that Southwest Airlines Co made significant progress in strengthening its ability to meet its interest obligations and improve its financial health. Nonetheless, it is important to monitor future developments to assess the company's continued ability to service its debt obligations.