LUV Shorts Grind Higher as the Sector Sells Off

Short interest has kept grinding higher, building on the trend flagged in last week's note. SI % of FF now runs at 4.4%, up 1.5% in shares over the past week and 11.8% over the past month. That brings the short position to roughly 22.7 million shares — the highest level in the 30-day window. The pace is measured, not aggressive, and the lending market confirms there is no squeeze dynamic here. Availability is extremely loose at 1,454% — meaning shares available to borrow dwarf those already out on loan by a factor of more than 14. Cost to borrow is 0.46%, essentially unchanged, well within the "easy" range. The borrow market is wide open. The short rebuild is a directional bet, not a crowded trade. Options pricing tells a similar story: the put/call ratio is 0.63, fractionally below its 20-day average of 0.64, essentially neutral. There is no rush for downside protection from derivatives traders.

The Street is broadly sidelined. The most recent analyst action of note came from Jefferies on April 27, when it cut its target from $42 to $37 while keeping a Hold — placing the target almost exactly where the stock is now trading. HSBC upgraded from Reduce to Hold around the same time but only moved its target to $36.10, below the current price. The overall analyst consensus implies roughly 21% upside to the mean target of $45.25, but the direction of recent moves has been down and to the neutral side, not bullish. Factor scores reinforce the caution: EPS momentum ranks in the 15th percentile on both the 30-day and 90-day windows, signaling that estimates are being cut. The analyst recommendation divergence score, however, ranks at the 93rd percentile — the widest dispersion in analyst views in the universe — suggesting the Street itself is genuinely split on the name.

The most significant outstanding institutional development remains Elliott Management's stake reduction, covered in last week's note. Elliott now holds approximately 24.3 million shares — down from the 57 million it held before its partial exit. The activist catalyst that drove the airline's restructuring is largely spent: assigned seating, basic economy, and route rationalization are now embedded. With Elliott scaling back, the structural support that premium underpinned has faded. Insider activity offers no counterweight. The last cluster of material insider transactions was in February, when the CEO and multiple executives sold at prices around $52 — well above current levels. Since then, selling has been limited to a small director transaction in April. No insider buying is visible in the data.

The next earnings event is on July 23. The two most recent post-earnings reactions show muted day-one moves — down 0.5% in May and up 0.25% in April — but both drifted lower over the following five days, losing 5.2% and 3.6% respectively. The July print will arrive with the stock at its lowest level in months, the Elliott premium largely eroded, and the Street watching whether the operational transformation under new seating and pricing formats is actually showing up in revenue per available seat mile.