Southwest Airlines experienced a 42% decline in profit during the first nine months of the year compared to 2024. Despite this downturn, the airline’s stock has surged nearly 24% in 2025, outperforming other U.S. passenger carriers. Delta Air Lines and United Airlines each recorded a 17% increase in their stock values this year, while Southwest’s shares reached a 2½-year high recently.
Analysts attribute Southwest’s stock performance to strategic initiatives rather than overall demand. Savanthi Syth, an airline analyst at Raymond James, noted that the positive trends in Southwest’s stock are linked to improvements in the company’s structure, especially as it prepares to shift from open seating to assigned seating on all its Boeing 737 flights starting January 27. This policy change, along with options for extra legroom—available for an additional fee—is anticipated to generate significant revenue, with projections of $1 billion in pretax earnings next year and $1.5 billion by 2027.
CEO Bob Jordan expressed confidence in the new seating arrangements, stating that the increase in bookings reflects a strong business case for these changes. Furthermore, Barclays recently upgraded Southwest’s stock rating, predicting adjusted earnings could exceed $4 per share in the coming year and surpass $6 per share by 2027.
The airline has also made significant changes by eliminating its decades-old policy of allowing two free checked bags and introducing basic economy fare options. Originally optimistic about demand, Southwest revised its earnings outlook for the year due to recent external factors affecting travel bookings.
Why this story matters
- Southwest Airlines is undergoing significant operational changes aimed at enhancing profitability in a competitive market.
Key takeaway
- Despite a decline in profits, strategic shifts in business practices have led to a notable rise in Southwest’s stock value.
Opposing viewpoint
- The airline faces challenges from reduced demand and external economic pressures which may undermine its forecasts.
