Southwest Airlines Q4 Earnings Call Highlights

Southwest Airlines (NYSE:LUV) reported fourth-quarter and full-year 2025 results that executives said reflect a year of rapid transformation, record revenue, and improved operational performance, while setting the stage for what management expects will be a sharp step-up in earnings in 2026.

Record revenue and EBIT, with operational performance highlighted

CEO Bob Jordan said the fourth quarter “capped a year of meaningful transformation and accelerated execution,” with full-year EBIT of $574 million, above the company’s prior guidance of $500 million. Southwest posted operating revenues of $7.4 billion in the fourth quarter and $28 billion for the full year, which Jordan called quarterly and annual records.

Jordan also emphasized operational metrics, noting Southwest ranked No. 1 in on-time performance, completion factor, and lowest extreme delays in December. He said the airline’s performance throughout the year helped it earn The Wall Street Journal’s top spot as Best U.S. Airline of 2025.

A year of sweeping business model changes

Jordan outlined a wide range of initiatives implemented during 2025, describing the pace and breadth of changes as unusual for the industry. The efforts spanned revenue, product, loyalty, and cost initiatives, including:

• Product changes, including bag fees, a Basic Economy fare product, and flight credit expiration
• Rapid Rewards updates, including variable earn and burn rates
• An amended co-brand credit card agreement with Chase featuring “new benefits and improved economics”
• Free Wi-Fi for loyalty members through a partnership with T-Mobile
• Expanded online distribution via partnerships with Expedia and Priceline
• Cost reductions that exceeded a $370 million target, including the company’s “first layoff of non-contract and management employees”
• Six new airline partners, launch of Getaways by Southwest, and the addition of red-eye flying
• Reduced turn times to boost aircraft utilization, plus new technology to improve operational reliability
• Discontinuation of the company’s fuel hedging program
• $2.6 billion of share repurchases in 2025 (about 14% of shares outstanding), while maintaining an investment-grade rating
• The launch of assigned seating and an extra legroom offering, requiring retrofit work across more than 800 aircraft

2026 outlook: ‘at least’ $4 adjusted EPS, with upside tied to new seating revenue

Jordan said Southwest expects “dramatically higher” earnings in 2026 and introduced a new full-year earnings framework. The company guided to full-year 2026 adjusted EPS of at least $4, compared with 2025 adjusted EPS of $0.93. CFO Tom Doxey reiterated the “at least $4” guidance represents the lower end of the company’s internal forecast and said management believes initiatives implemented in 2025 set up “meaningful margin expansion and strong earnings growth” in 2026.

Jordan said the company is not yet providing an upper bound for 2026 EPS because assigned seating and extra legroom became operational only two days before the call, and management wants more data on close-in booking behavior and ancillary take rates, particularly among business and price-flexible travelers. He said the company expects better visibility into potential upside within “a month or two,” and anticipates providing range-bound EPS guidance when reporting current-quarter results, “if not before.”

Management also said it plans to move toward “industry norm” guidance, stepping back from providing detailed metrics on initiatives such as bag fees, assigned seating, and the co-brand program.

Unit revenue, capacity, and cost commentary

COO Andrew Watterson said fourth-quarter capacity grew 5.8% year-over-year even though the fleet count was “roughly flat,” attributing the gain to efficiency efforts such as reduced turn times and red-eye flying. He said full-year operating revenue increased 1.7% year-over-year, supported by demand and “buy-ups” related to implemented changes.

Watterson said fourth-quarter RASM declined 0.2% year-over-year, citing the impact of FAA-mandated schedule cuts. For the first quarter of 2026, Southwest expects RASM to increase by at least 9.5% year-over-year, with contributions from yield, load factor, initiatives, and loyalty programs. First-quarter capacity is expected to grow 1% to 2% year-over-year, despite operating with about seven fewer aircraft, which Watterson said reflects continued efficiency gains.

On costs, Doxey reported fourth-quarter EBIT of $386 million and said CASM-ex increased 0.8% year-over-year, despite lower capacity than initially planned. Looking to the first quarter of 2026, the company guided to adjusted EPS of at least $0.45, compared with a $0.13 loss in the first quarter of 2025. CASM-ex is projected to increase approximately 3.5% year-over-year in Q1, including about 1.1 points of impact from removing six seats from the 737-700 fleet to enable extra legroom seating.

In response to a question about beating prior CASM guidance, Doxey said there was no cost shifting between quarters, describing the improvement as “widespread” efficiencies across “really every line item.” He also said management headcount expense is planned to be flat versus 2025 levels in 2026, with additional focus on frontline operational efficiency.

Fleet, balance sheet, and capital allocation

Doxey said Boeing is executing on delivery commitments, and Southwest expects 66 Boeing 737-8 deliveries in 2026 while retiring 60 aircraft. Net capital spending is expected to be $3 billion to $3.5 billion for the year, with Doxey later clarifying that aircraft sales are an offset within the net number.

The company issued $1.5 billion of unsecured bonds in November, ended the quarter with $3.2 billion in cash, and reported a gross leverage ratio of 2.4 times. During 2025, Southwest repurchased $2.6 billion of shares and paid $399 million in dividends. Executives said they intend to remain within “guardrails” consistent with maintaining an investment-grade rating while continuing to invest in the business.

During the Q&A, management also said it has no active aircraft RFPs in the market. Executives discussed further potential opportunities including network optimization, incremental cost takeout, and building corporate share as the airline’s product offering becomes more differentiated.

About Southwest Airlines (NYSE:LUV)

Southwest Airlines Co is a U.S.-based low-cost carrier that operates a point-to-point domestic and near-international airline network. Headquartered in Dallas, Texas, the company primarily flies Boeing 737 aircraft and offers no-frills, single-class service designed to keep fares competitive. Southwest’s operating model emphasizes high aircraft utilization, quick turnaround times and an open seating policy, allowing customers to board and select seats on a first-come, first-served basis.

Founded in 1967 by Herb Kelleher and Rollin King as Air Southwest Company, Southwest began commercial service in 1971, initially connecting Dallas, Houston and San Antonio.