Southwest Airlines Charts Aggressive Course After 'Year of Transformation,' Forecasts Earnings Surge in 2026
DALLAS – Southwest Airlines Co. (NYSE: LUV) closed the book on what it calls a foundational year of rapid change, reporting record annual revenue and setting the stage for a projected leap in profitability for 2026. The airline's leadership, in a fourth-quarter earnings call, painted a picture of an evolving low-cost carrier ready to leverage new revenue streams while maintaining its operational edge.
Full-year 2025 operating revenue reached $28 billion, a company record, with fourth-quarter revenue at $7.4 billion. More notably, management issued bold guidance for the coming year, forecasting full-year 2026 adjusted earnings per share (EPS) of at least $4.00, a stark increase from the $0.93 adjusted EPS reported for 2025.
"2025 was a year of meaningful transformation and accelerated execution," stated CEO Bob Jordan. He highlighted that the airline's operational performance, including leading rankings in on-time arrivals and completion rates, contributed to it being named The Wall Street Journal's Best U.S. Airline of 2025.
The transformation Jordan referenced encompasses a sweeping set of initiatives rolled out last year, including the long-anticipated introduction of assigned seating and extra-legroom options, a revamped co-branded credit card program, and new baggage fee structures. These moves mark a significant shift for the airline, historically known for its single-class, open-seating model.
CFO Tom Doxey emphasized that the at least $4 EPS target is "the lower end of our internal forecast," suggesting potential for further upside. He attributed the expected surge to "meaningful margin expansion" stemming from the 2025 changes. However, executives stopped short of providing a full range for 2026 EPS, citing the need for more data on customer uptake of the new ancillary services, particularly among business travelers.
Operationally, the airline managed a 5.8% year-over-year increase in fourth-quarter capacity despite a roughly flat fleet size, a feat COO Andrew Watterson credited to efficiency gains like reduced turnaround times. Looking ahead, Southwest expects a strong first quarter, with revenue per available seat mile (RASM) projected to jump at least 9.5%.
On the cost side, the airline is navigating investments in its new product offerings. CASM-ex (cost per available seat mile, excluding fuel and profit-sharing) is expected to rise about 3.5% in Q1 2026, partly due to removing six seats from some aircraft to accommodate extra legroom options.
Financially, Southwest ended the quarter with $3.2 billion in cash and a gross leverage ratio of 2.4x. The company remains active in returning capital to shareholders, having repurchased $2.6 billion in stock and paid $399 million in dividends during 2025.
The airline also provided updates on its fleet, expecting 66 deliveries of Boeing 737-8 aircraft in 2026 while retiring 60 older planes.
Industry Observers Weigh In
Michael Thorne, Travel Industry Analyst at Hudson & Reed: "Southwest is executing a delicate balancing act. The projected EPS jump is exceptionally ambitious and signals deep confidence in their new revenue architecture. The key will be whether they can harvest these ancillary revenues without diluting the brand loyalty that made them a powerhouse."
Lisa Rodriguez, Frequent Business Traveler: "Finally, assigned seating! As someone who flies weekly, the old cattle-call boarding was a major pain point. If they can reliably offer extra legroom for a reasonable fee and maintain their on-time performance, they'll definitely get more of my corporate travel budget."
David K. Miller, Editor at 'The Flying Critic' Blog: "This is the end of Southwest as we knew it. They're chasing margins with bag fees and seat assignments, betraying the simple, transparent model that built their cult following. The 'at least $4' EPS guidance feels like a Hail Mary to placate Wall Street after years of underperformance. I'll believe it when I see it."
Anita Chen, Portfolio Manager at ClearSky Investments: "The guidance is a clear positive shock. The market was underestimating the cumulative impact of their initiatives. If they can deliver even the low end of their internal forecast while keeping cost creep in check, the re-rating of the stock could have significant room to run."