Download PDF

1. Company Snapshot

1.a. Company Description

Southwest Airlines Co. operates as a passenger airline company that provide scheduled air transportation services in the United States and near-international markets.As of December 31, 2021, the company operated a total fleet of 728 Boeing 737 aircrafts; and served 121 destinations in 42 states, the District of Columbia, and the Commonwealth of Puerto Rico, as well as 10 near-international countries, including Mexico, Jamaica, the Bahamas, Aruba, the Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos.It also provides inflight entertainment and connectivity services on Wi-Fi enabled aircrafts; and Rapid Rewards loyalty program that enables program members to earn points for dollars spent on Southwest base fares.


In addition, the company offers a suite of digital platforms to support customers' travel needs, including websites and apps; and SWABIZ, an online booking tool.Further, it provides ancillary services, such as Southwest's EarlyBird Check-In, upgraded boarding, and transportation of pets and unaccompanied minors.The company was incorporated in 1967 and is headquartered in Dallas, Texas.

Show Full description

1.b. Last Insights on LUV

Southwest Airlines' recent performance was positively driven by its Q3 earnings beat, with earnings of $0.11 per share exceeding the Zacks Consensus Estimate of $0.01 per share. The company reported record third-quarter operating revenues of $6.9 billion and returned $439 million to shareholders through share repurchases and dividends. Additionally, Southwest Airlines launched assigned and extra legroom seating sales for flights starting January 27, 2026, with initial bookings in line with expectations. The company also declared a quarterly cash dividend of $0.18 per share.

1.c. Company Highlights

2. Southwest Airlines' Q3 2025 Earnings: Strong Revenue and Margin Performance

Southwest Airlines reported strong financial performance in Q3 2025, with record quarterly revenue and an all-time quarterly record revenue performance expected in Q4. The company's revenue came in ahead of expectations, driven by a positive inflection in demand beginning in early July, which continued throughout the quarter. The airline's EPS was $0.11, beating estimates of $0.01. Costs and revenue finished ahead of expectations, with CASM-X coming in at up 2.5%, beating the midpoint of the guide by 2 points. The company's RASM is expected to be in the range of up 1% to 3% in Q4.

Publication Date: Oct -25

📋 Highlights
  • Fourth Quarter Revenue Record:: Southwest expects all-time quarterly revenue in Q4 2025, with RASM up 1-3% and capacity growth of ~6% YoY.
  • Assigned Seating Revenue:: New assigned extra legroom seating will contribute $1.5B in full-year EBIT by 2027, with $1B incremental EBIT in 2026.
  • Customer Satisfaction Boost:: 4-point improvement in Net Promoter Score post-rollout of assigned seating and product upgrades (larger bins, in-seat power).
  • Cost Efficiency:: CASM-X up 2.5% in Q3 2025, exceeding guidance midpoint by 200 bps, driven by operational investments and productivity gains.
  • Product Mix Shifts:: Basic economy fare mix dropped below 50% in 2025 (vs. 80% in 2024), with mid-single-digit yield improvements from fare product buy-ups.

Revenue Drivers and Initiatives

The airline's revenue growth was driven by various initiatives, including the rollout of assigned extra legroom seating, free WiFi sponsored by T-Mobile for Rapid Rewards members, and updated cabins with larger overhead bins, in-seat power, and upgraded lighting. The company is also expanding its distribution channels, launching a partnership with Priceline, and has announced new markets. According to Andrew Watterson, "we saw an inflection on connections, with enplanements outpacing passengers, which helped our load factor."

Margin Performance and Cost Discipline

The company's margin performance was strong, with CASM-X coming in at up 2.5%. Tom Doxey emphasized that this is more about spending smartly than simply cutting costs, with customer, technology, and operational investments across Southwest Airlines. The airline expects to deliver more than $1 billion of incremental EBIT from assigned extra legroom seating in 2026 and hit a full run rate of $1.5 billion in 2027.

Valuation and Growth Expectations

Analysts estimate next year's revenue growth at 7.3%. The company's current valuation metrics are as follows: P/E Ratio: 46.56, P/B Ratio: 2.27, P/S Ratio: 0.61, EV/EBITDA: 8.71. Given the company's strong revenue and margin performance, its valuation multiples appear reasonable. However, investors should monitor the company's ability to execute on its initiatives and achieve its growth expectations.

Outlook and Risks

The company expects to deliver an all-time quarterly record revenue performance in Q4, with capacity growth expected to be approximately 6% in Q4 compared to a relatively low base in Q4 2024. However, the company faces risks related to fuel costs, macroeconomic conditions, and competition. Tom Doxey emphasized the importance of leaving some headroom in the company's guidance, given the uncertainty in the market.

3. NewsRoom

Card image cap

2025's Takeoffs & Touchdowns for Airline Stocks, Outlook for 2026

Dec -04

Source: youtube.com

Card image cap

Airport Traffic Hits US Record Sunday After Thanksgiving: Will Airline Stocks Take Flight Into 2026?

Dec -02

Source: benzinga.com

Card image cap

Airport Traffic Hits US Record Sunday After Thanksgiving: Will Airline Stocks Take Flight Into 2026?

Dec -02

Source: feeds.benzinga.com

Card image cap

The Big 3: AMZN, LUV, C

Dec -02

Source: youtube.com

Card image cap

SOUTHWEST AIRLINES TEAMS UP WITH CONDOR BRINGING ADDITIONAL TRAVEL OPTIONS ACROSS THE ATLANTIC

Dec -02

Source: prnewswire.com

Card image cap

Blueshift Asset Management LLC Has $896,000 Stock Position in Southwest Airlines Co. $LUV

Dec -02

Source: defenseworld.net

Card image cap

Airline Stocks Are Falling. Thanksgiving Didn't Go to Plan — the Delays and Cancellations.

Dec -01

Source: barrons.com

Card image cap

HALPER SADEH LLC ENCOURAGES IRHYTHM TECHNOLOGIES, INC. SHAREHOLDERS TO CONTACT THE FIRM TO DISCUSS THEIR RIGHTS

Nov -30

Source: prnewswire.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (4.82%)

6. Segments

Passenger

Expected Growth: 5%

Southwest Airlines Co.'s 5% passenger growth is driven by its competitive pricing, extensive route network, and high-quality customer service. Additionally, the airline's strong brand reputation, modern aircraft fleet, and efficient operations contribute to its growth. Furthermore, the increasing demand for low-cost carriers and the airline's strategic expansion into new markets also support its growth momentum.

Other

Expected Growth: 3%

Southwest Airlines Co.'s 'Other' segment growth is driven by increased demand for ancillary services, such as EarlyBird Check-in and upgraded boarding, as well as growth in its loyalty program, Rapid Rewards. Additionally, the airline's focus on improving customer experience and expanding its revenue management capabilities also contribute to this growth.

Freight

Expected Growth: 4%

The 4% growth in freight from Southwest Airlines Co. is driven by increasing e-commerce demand, rising air cargo volumes, and strategic partnerships with logistics companies. Additionally, the airline's expanded cargo capacity, improved operational efficiency, and competitive pricing also contribute to this growth.

7. Detailed Products

Passenger Air Travel

Southwest Airlines offers passenger air travel services to over 100 destinations in the United States, Mexico, the Caribbean, and Central America.

Rapid Rewards

Rapid Rewards is Southwest Airlines' loyalty program, allowing members to earn points and redeem rewards, including flights, hotel stays, and car rentals.

Southwest Vacations

Southwest Vacations offers bundled travel packages, including flights, hotels, and car rentals, to popular destinations.

Cargo Services

Southwest Airlines offers cargo services, allowing businesses to ship packages and freight across the United States.

In-Flight Amenities

Southwest Airlines offers in-flight amenities, including snacks, drinks, and Wi-Fi, to enhance the travel experience.

8. Southwest Airlines Co.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Southwest Airlines has a low threat of substitutes due to the lack of alternative modes of transportation for long-distance travel.

Bargaining Power Of Customers

Southwest Airlines has a medium bargaining power of customers due to the presence of multiple airlines in the market, giving customers some flexibility in choosing their airline.

Bargaining Power Of Suppliers

Southwest Airlines has a low bargaining power of suppliers due to the presence of multiple suppliers in the market, reducing the dependence on a single supplier.

Threat Of New Entrants

Southwest Airlines has a low threat of new entrants due to the high barriers to entry in the airline industry, including high capital requirements and regulatory hurdles.

Intensity Of Rivalry

Southwest Airlines operates in a highly competitive market with multiple airlines competing for market share, leading to a high intensity of rivalry.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 46.66%
Debt Cost 3.95%
Equity Weight 53.34%
Equity Cost 9.74%
WACC 7.04%
Leverage 87.49%

11. Quality Control: Southwest Airlines Co. passed 1 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
Primoris Services

A-Score: 5.2/10

Value: 3.4

Growth: 8.6

Quality: 4.7

Yield: 0.0

Momentum: 10.0

Volatility: 4.7

1-Year Total Return ->

View Full Report
Stock-Card
Robert Half

A-Score: 5.0/10

Value: 6.4

Growth: 3.2

Quality: 5.5

Yield: 8.0

Momentum: 0.0

Volatility: 6.7

1-Year Total Return ->

View Full Report
Stock-Card
IDEX

A-Score: 4.8/10

Value: 3.1

Growth: 4.9

Quality: 7.9

Yield: 3.0

Momentum: 2.0

Volatility: 8.0

1-Year Total Return ->

View Full Report
Stock-Card
Southwest Airlines

A-Score: 4.6/10

Value: 6.4

Growth: 3.0

Quality: 3.8

Yield: 3.0

Momentum: 6.0

Volatility: 5.3

1-Year Total Return ->

View Full Report
Stock-Card
Alaska Air

A-Score: 4.2/10

Value: 6.5

Growth: 4.7

Quality: 3.4

Yield: 0.0

Momentum: 6.0

Volatility: 4.7

1-Year Total Return ->

View Full Report
Stock-Card
American Airlines

A-Score: 4.0/10

Value: 7.9

Growth: 4.8

Quality: 3.8

Yield: 0.0

Momentum: 4.0

Volatility: 3.7

1-Year Total Return ->

View Full Report

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

38.06$

Current Price

38.06$

Potential

-0.00%

Expected Cash-Flows