Southwest Airlines (LUV) shares surged 15.7% to $47.23 on Thursday, surpassing a previous 52-week high of $45.02, after the carrier reported fourth-quarter results and issued a 2026 profit outlook that significantly exceeded market expectations.
The Dallas-based airline, which is undergoing its most significant business model transformation in 54 years, has seen its stock trend upward in early 2026 after underperforming the broader market for much of the prior year. The shares are currently trading near the top of their 52-week range following the launch of assigned seating and extra-legroom options.
Quarterly and Full-Year Performance
For the fourth quarter ended Dec. 31, 2025, Southwest reported record operating revenue of $7.44 billion, a 7.4% increase from $6.93 billion a year earlier. Adjusted earnings per share (EPS) came in at $0.58, beating the analyst consensus of $0.56.
Net income for the quarter was $323 million, or $0.61 per diluted share, up 23.8% year-over-year. Operating expenses rose 6.0% to $7.1 billion, driven by higher labor costs and a fuel price of $2.45 per gallon. Operating margin on an adjusted basis was 5.2%.
For the full year 2025, Southwest generated record revenue of $28.1 billion, up 2.1% from 2024. Adjusted earnings before interest and taxes (EBIT) reached $574 million, surpassing the company’s prior guidance of $500 million. Full-year adjusted EPS was $0.93.
2026 Outlook and Transformation
The company forecast 2026 adjusted EPS of at least $4.00, more than quadruple its 2025 earnings and well above the Wall Street consensus of $3.19. Management characterized this guidance as the “lower end” of internal forecasts. For the first quarter of 2026, the airline expects revenue per available seat mile (RASM) to increase at least 9.5% year-over-year.
The bullish outlook follows the implementation of revenue-generating initiatives including:
- New baggage fees and basic economy fares.
- Assigned seating and extra-legroom cabins (launched Jan. 27, 2026).
- Expanded online distribution via Expedia and Priceline.
Sector Context
The results come amid broader macro pressures in the transportation sector. While the software and SaaS sectors have faced headwinds from high interest rates and moderated enterprise spending, the airline industry is navigating a transition where labor has surpassed fuel as the largest operating expense.
Industry-wide supply chain constraints continue to delay aircraft deliveries from Boeing and Airbus, limiting capacity growth. Southwest ended 2025 with 803 aircraft and plans to receive 66 Boeing 737-8 jets in 2026 while retiring roughly 60 older models.
Southwest returned $2.9 billion to shareholders in 2025 through dividends and the repurchase of approximately 14% of its outstanding shares. The company maintained a leverage ratio of 2.4x and an investment-grade credit rating.
