Southwest Airlines released its 2025 fourth quarter and full year financial results after market close. And the clear takeaway from these numbers seems to be that their turnaround plan is not working. Or at least it’s not working… yet. CEO Bob Jordan says it positions them to succeed in the future. We shall see.
You would not expect a strategy of taking the most financially successful airline in history, discarding everything unique about their business model, and copying financial laggards JetBlue and American – but worse because they lack AC seat power, seat back entertainment, functional wifi, first class, lounges (yet!) and ovens for hotel meals on board – to a recipe for success.
They often talk about the billion dollars that checked bag fees are generating. Except they aren’t!
- Before adopting checked bag fees, Southwest claimed that they’d generate $1.5 billion. So when they’ve talked about annual $1 billion run rates that is underpeforming expectations.
- And they always explained that it would cost them $1.8 billion in lost revenue (passengers who no longer choose them for the free checked bags).
- They no longer ‘net out’ these losses against the revenue, in order to claim success.
- But more importantly, the money doesn’t actually show up in net revenue. Southwest Airlines passenger revenue grew just 2.2% in 2025. That’s less than the rate of inflation (~ 2.6%).
Southwest Airlines made less money in 2025 than they did in 2024. Full year net profit in 2024 was $465 million vs. $441 million in 2025.
So what accounts for the profit they did make? It wasn’t checked bag fees. Note that they didn’t grow revenue! They actually say it was cost cuts, primarily layoffs.
Outperformed the previously provided estimate of $370 million in cost reduction, including the first Company layoff of non-contract and management Employees
Although, in fact, their fuel expenses fell $655 million year-over-year … on average the price of a barrel of oil was 14.5% lower in 2025. Without this they would have lost money. And holding fuel constant, they performed nearly $700 million worse in 2025 than the did a year earlier, even with checked bag fees or because Southwest Airlines wasn’t as desirable to fly.
And what are they doing now with the money they’re making? Stock buy backs.
Southwest earned $441 million in profit for the year, but bought back $2.9 billion in shares. I wrote in 2024 that share buybacks were the real goal of their activist investors and when Southwest capitulated to Elliott Management I wrote that’s exactly what to expect.
There’s nothing inherently wrong with buying back shares. That’s just a tax-efficient way of returning capital to shareholders when you don’t have a productive way to invest it at a market rate of return. Share counts should not only ever go up.
But what investors were interested in wasn’t a Southwest ‘turnaround’ although to be sure that would be desireable. Their original deck underscored the attractiveness of the airline’s ‘unlevered balance sheet’. They could sell planes, lease them back, and use the cash for buy backs. And the problem is that this now adds costs that makes them less profitable, and they do have productive uses for it – the new fleets they need to expand and new airport lounges are costly, capital-intensive projects!
A big part of the problem with American Airlines – was the $12.53 billion in stock they bought back, essentially with borrowed money (at an average share price of ~ $39.25, or three times today’s price). As a result, they’ve avoided buying widebodies, limited investments in clubs, and faced a significant drag from interest payments.
Southwest Airlines was insular and bloated. They were slow-moving. There are changes they needed to make to their business for a long time. For instance, sticking to just Boeing 737-700 and -800 aircraft (including the MAX) doesn’t let them serve enough markets or feed enough passengers. Not selling tickets through online travel agencies was a mistake.
- They were losing out on a lot of customers, for instance anyone with American Express points or Citi points booking through those bank portals. That alone had to be at least 5 to 8 points of load factor.
- And they were unusually dependent on passengers on one side of most of their routes. For a flight between Dallas and Sarasota, Savannah or Syracuse, instead of traffic being evenly split between passengers from both ends of the route they were heavily skewed to Dallas passengers only because that’s who knew to go to Southwest Airlines to search for flights. They lost anyone looking up flights on Expedia.
- Of course, once they add third party distribution they’re comparing their fares against competitors. And Southwest, with bag fees bundled, was often more expensive! And then there’s a natural drive to unbundle (basic economy), especially since the Department of Transportation rule requiring displaying airfares with the cost of a checked bag was enjoined by the courts. They hadn’t innovated, they were stuck in a tough spot, and they had no other ideas but copying everyone else – and Elliott Management didn’t, either.
They don’t fly long haul international and didn’t have partners, which meant they didn’t just lose the business of their customers when those customers flew abroad (and many chose to give other airlines their business because they could use all of their flying to earn status that way) but they also couldn’t offer Europe and beyond as an enticement to frequent flyers to get and spend on their credit card. So they were losing out on revenue that’s fueling profits for the rest of the industry.
Southwest needed to make changes but they didn’t need to give up what made them special. And though the airline will keep spinning that everything they do is successful (just as they did before making these changes!), the numbers tell the real story.
Eh, it was a weird transition year, they had the bag fees added without the seating charges, so it was literally the worst of the worst to fly.
This year they have the seat assignments and extra legroom and hopefully they can begin to leverage that. The millions of people who avoided them for decades because of their seating policy can now consider them. Those results will hopefully start to show later this year.
Time will tell, but to me the Southwest’s telltale decision was to exploit its near-monopoly at Oakland. Fares there are close to double what Southwest charges at SFO, a competitive and higher-cost airport. This is new. This is Elliott. It’s long-term stupid.
Traffic is down at Oakland. Southwest keeps cutting its intra-California schedule from Oakland rather than decreasing its fares. Milking the cash cow dry.
I now have Frontier Gold status. I hope they invade Oakland.
Southwest seems to believe that people will pay whatever they charge. Basic fares are not cheaper than Wanna Get Away was. They are often more. And free same day changes for elites disappeared with this rebranding.
Choice fares give back part of what was taken away, but cost $30 more. That $49 fare become $79. Not a small increase for frequent flyers. So I invested in Frontier Gold status and Discount Den. They fly me for $19 to $38, sometimes with extra legroom. If they added a flight for every flight Southwest dropped, I’d be covered.
In 2024 stupidly invested in non-expiring Southwest travel funds in the belief that I would have years to use them. Now I can only use them for travel I am sure to take. My advance booking on Southwest have shrunk for 5 months to 2. The fares are too damned high.
I loved Southwest for 35 years, and they loved me. I hope they find their way back home.
Oh no… won’t someone think of the shareholders!
Not surprising, there is 18-24 months of backup from people who already had flights booked, waited to cancel CC’s, or needed to use up their points. Case in point, I just finalized my last transaction with WN this December.
SouthWest can enjoy the downfall, outside of being a captive in STL, BNA, or BWI, why would you fly them now?
further confirmation that Elliott will orchestrate an acquisition of Southwest by Delta.
Elliott held DL out as the standard to which WN should aspire but reality isn’t working out as planned.
WN has a long runway but it is time to demonstrate that they can make money.
and, they quit hedging in 2025 so some of their fuel gains would not have happened since their fuel hedges were underwater.
In fairness, Southwest didn’t start charging for bags until May 28. You can’t get a good idea of how much revenue they’re generating from that until it’s been a full year.
Southworst has, as I predicted, just become a bigger turd that is rapidly swirling the bowl. After 40+ years of loyalty, I have only one round trip planned in February – then it is adios. They have dismantled a once GREAT airline, took away all of the good perks and have replaced these perks with gouging. Their now in effect pathetic boarding process is a complete time consuming fiasco. Millions of once loyal customers agree with me. Southworst will go under, it is just a matter of time.
Gary Leff…the sellout “journalist”. We all know this is a joke and we all know you’re being paid for these garbage articles. Which airlines is paying you? I’m guessing UAL.
@Tim Dunn: “further confirmation that Elliott will orchestrate an acquisition of Southwest by Delta.”
When?
@Johnny – that is truly funny.
However, let me unequivocally state that (1) this article was not commissioned (2) United Airlines has not ever paid me – except for reimbursement at 50 cents on the dollar of modest clothes I purchased when they lost my bag in Osaka in 2007.
@scott – why not? Southwest has told us how much revenue it’s generating. And surely half a year should show up in the revenue numbers.
L3
it is part satire but WN can only buy back so much stock and not improve financial performance.
and I don’t think it will happen because WN’s 4th quarter performance was better than its 2025 as a whole performance; WN’s turnaround is taking hold even it WN is not progressing as WN said in early projections.
this current quarter will be the key quarter when it will be obvious if WN has succeeded in firing some of its lowest paying passengers and gained more new passengers that are worth far more.
and the real likelihood is that a strengthened WN will take a decent bite out of AA and UA, both of whom have much larger overlap with WN than DL does.
UA’s gains in DEN at WN’s expense could well be reversed while WN could benefit by not having the capacity dumping in Chicago that is taking place at ORD. DAL and DFW are very close together and I am sure that WN has picked up a lot of passengers this week that are looking at WN differently precisely because of assigned seating, WiFi, and extra legroom seats – and no more preboarders taking all of the good seats.
I have been a very loyal Southwest fly over the years but got rid of my credit card for my points and everything that made it unique has gone away
I will fly them if they are the most convenient or cheapest but not out of loyalty anymore
I think Tim Dunn is right. Look at 4th quarter results and you can see the changes taking effect. In a quarter where the government shutdown hurt everyone, Southwest had a pretty big Operating Income improvement year over year. Let’s compare everyone’s year over year Operating Income for the 4th Quarter:
JetBlue -688% (weird because they swung from a $17m profit to $100m loss)
American -60.2%
Delta -15%
United -7.8%
Alaska +3%
Southwest +40.6%
Fortunately, us shareholders have seen a 22% share-price increase (plus dividends) in the last 8 months. I’m a (very small) shareholder because of the bad-mouthing they’ve received here by a group of intellects, I, um, don’t have respect for. I own Boeing for the same reason. Simple strategy: invest against the advice of posters here.
For the love of GOD…. Could you PLEASE stop using that staged cabin photo with old seats and all of the window shades closed?
I mean come on…. You may hate Southwest (perhaps even more than you hate American).. but can you PLEASE start using a cabin photo that is somewhat current???
With respect, @Tim Dunn there is no way a DL-WN merger will ever happen. The combined airline (including regional flying) would boast over 375 million passengers. This would be 150 million more than the next closest carrier (AA).
You let the #2 and #3 airlines merge and the rest of the airlines are going to lose their minds. They will hire every lobbyist within 500 miles of DC and fire up their legislative caucuses in every state where they have hubs.
Any merger between DL and WN would require a considerable divestiture of gates / slots in cities with enough overlap or constrained competition (NYC, DC).
In reality, WN is more valuable sold off for parts. It would be the easiest way to avoid an antitrust issue unless WN is acquired by a smaller carrier
Say, all of those Concourse C gates in Denver? Would that be enough for Delta to move their SLC hub?
Many Southwest customers are bypassing the ticket counter to check their bags no matter the size and weight and then gate checking them for free. This has injured flight attendants, Ops agents, customer service ,and ramp agents. Southwest Airlines at one time was like the Oakland Raiders with Silver & Black during the Al Davis years a team of rebels who defy the rules and somehow find a way to win. Today’s version of The Raiders now in Vegas are a push over and a guaranteed W for its opponents. Gary Kelly destroyed Herb’s creation and Bob Jordan though he has to answer to Elliott carried on Gary Kelly’s work. I am a former near 17 yr Southwest employee while my wife is in her 24th yr for Southwest. Surprisingly the assigned seating on day 1 went fairly well. The Southwest Airline culture Flatlined years ago and has little or zero regard to its customer and employee base.
Parker,
take a deep breath.
I said that talk about a DL-WN merger is part satire but more importantly not likely to happen because WN actually did much better than this article assumes.
When you focus on the whole year and ignore the improvement in earnings by quarter, you will miss the plot.
And it is also precisely because WN is fixing alot of things that real business travelers didn’t like while firing alot of customers that added little value that they become a much bigger threat to the airlines with which they have the greatest overlap which is AA and UA.
It isn’t a surprise that the people that say that they won’t fly WN anymore are in the same camp – if not the same people – that argue about the high prices that the legacies charge.
WN, like every other US airline, is a for-profit business. Their business plan wasn’t working. 60 years of history means nothing if they were heading for the cliff if they didn’t do something.
Whether they succeed will be the question for 2026 but the chances are much higher that they will turn around than AA will
@Tim Dunn — Have you been practicing mindfulness? Lookie at woke-Tim! And ‘satire,’ really? So now you’re a jokester, too! Full of surprises, sir. As to WN, let’s be clear, they’re changing their target market, no longer leisure, attempting business travel, even though, unless it was the self-employed, corps were sending folks to the big-three already anyway (less so AA after the NDC incidents). DL was a major beneficiary of that; much of the platforms practically promote DL when booking OPM.
Stuck between the US3 legacies and ULCCs. Not a good place to be. Can’t attract the real premium flyer but the ULCC customer does nothing for profits. Doesn’t have the credit card income of the US3.
@George Romey — Nah, diversification and additional competition in the market is good, for consumers at least. Sure, airlines would love to have a monopoly and receive state-subsidies, like ME3, and I suppose we can enjoy the Dom and Beluga with them, if we pay for it, but that’s not the US, and likely never will be. As for credit cards, you’re not wrong there; that really is the only thing keeping anyone afloat, other than the pandemic-era billions in public funds that were used for stock buybacks and executive pay. As I’ve said to Tim, DL just got lucky with Amex; Chase and Citi aren’t as ‘beneficial.’ Any other issuer/bank is a joke. Like, oh, surely, Cardless will save Avelo…NOT.
@This comes to mind — You’re a ‘nothing’ of a shareholder. You aren’t even a plankton, bud. Unless you have tens of millions invested in these guys, you really do not count.
I was a diehard Southwest fan till they made all the changes. I have since canceled my SW credit card ( took a hit on my rating for that) and aquired a Jet Blue card.
Has anyone mentioned that the expense of the cabin reconfigurations will have to hit the bottom line in Q4 25 or Q1 26?
I am stuck with a lot FF miles, maybe I will use them for Lowe’s gift cards and get some kitchen appliances as I have no desire to fly on WN. I will miss the great past SWA culture and learned to deal and like the open seating system. Will also dump the Chase card with it’s Elliott induced price increase.
>Operating Income for the 4th Quarter:
Southwest +40.6%
Southwest will doubtless gain in 2026, strictly on momentum. The damage will show up starting in 2027, after customers spend their points and travel credits and drop their Southwest habit. And after competitors invade Southwest’s fortress markets.
Tim is right that Southwest’s business model was maxed out (pun intended). I don’t know what the best strategy would have been, but I’m pretty sure “charge the same or more for an inferior product” is not it.
Hey Gary,
Just curious how your take is so different than the major sell side analysts covering Southwest that have turned quite positive over the last month? 2025 had barely any financial benefit from the new commercial revenue initiatives, and while there is a callout of total initiatives, this was a year that macroeconomic forces brought the entire industry lower. How much of the year-over-year revenue loss are you attributing to systemic industry wide impacts versus specific to Southwest? I see RASM performance ahead of peers in 4Q, on higher ASM growth. just curious what your take is!
Revenue from the main transformational efforts will start to hit P&L in 1Q as that is when assigned seating is starting….and what wall street is focused on. thoughts?
I briefly worked for WN last year, having moved from a third party ramp contractor thinking I’d finally gotten to an airline, a career destination! The culture behind the scenes was so appalling at a certain east coast megastation that I was gone within three months. Every individual was great but the operation and the culture pushed down by Elliott was nothing short of cancerous.
So now they have assigned seats. They charge for belly bags yet can’t grasp why they run out of overhead bin space nor how that affects the blessed on time departure (last minute bags have to come down, be loaded, cargo door closes late, boom!, delay). They’re as expensive as economy on any other airline yet don’t offer meals, IFE, or other perks. No true international if someone wants to jump across either ocean for holiday or business. And, on a personal note, I have never seen a more demotivated cabin crew than on WN post-Elliott.
I want Southwest to turn around, they’re the largest carrier by far in my home city, and have a pretty significant presence where I’ve since moved. They charge legacy economy money while offering ULCC value, all while having a gate agent shout they need more bags to be checked else that agent gets a write up. The culture is in the can. I’ll never willingly fly Southwest until a lot of things change.
Its funny reading all this hate mail. I just bought a one way seat from the west coast to honolulu for $100. Southwest is going to be just fine. If you don’t change and adapt to the current business environment, you wont succeed. SWA still provides great value to its customers.
These takes are certainly interesting. The shouting from the rooftops that Southwest only made money because of fuel savings, when they took delivery of 55 -8s on the year and retired the same amount of aircraft – inherently part of the business plan to become more efficient by upgrading aircraft. The consistent whining about the sale leasebacks continues to be off base, as if Delta and United haven’t done the same in the past 5 years. Southwest didn’t mortgage their fleet – they took advantage on an immaterial amount of 800s that were experiencing a significantly inflated used market.
United passenger revenue: up 3.1% year over year, fuel expenses down 3.1% year over year – so I guess the only reason they were profitable was because of fuel savings?
Delta, the golden child of the industry, passenger revenue: up 2% year over year, fuel expenses down 7% year over year – so I guess the only reason they were profitable was because of fuel savings?
Southwest was strategic in the timing of their launching of bag fees. While consumer behavior continues to shift towards close-in bookings, a significant portion continue to buy multiple months in advance. The overwhelming majority of Q3 passengers flew on tickets that still had bags flying free, so I think it is quite the false pretense to claim that bag fees and their new strategy isn’t working.
Also, half the fleet has in seat power. And the wifi is as functional as any other non-Starlink offering (and we’re pretending Southwest isn’t actively working things out with a new provider).
And here we go again with the share buybacks. The company was sitting on 10+ billion in cash for years and years. You do realize that during its most profitable stretch in company history, in the mid 2010s, that the company was also buying back billions and billions in stock? I assume you had no issue with it then?
Analyst consensus for full year 2026 was $3.18 EPS, and Southwest is conservatively guiding $4.00 EPS. LUV is up 18.5% today, their best trading day in 20 years – but the transformation isn’t working folks. The numbers are lying to you – the numbers that show they exceeded their guidance on cost cutting measures in 2025, and that the revenue side is now finally catching up with a definitive path forward. Sure sounds like a failing airline to me Gary. Right on par with Spirit, JetBlue and American.
And, poof, Wall Street loves them. Up a bunch today, making it a 45% increase before dividends in 8 months. Yes, a paper profit for investors, but the investors are bullish. You don’t loose investing against the
p! $$!ng and moaning here (and at other blogs) primarily from the infrequent/one-time posters.
@This comes to mind — Wall Street is their customer, then, not actual passengers, because the shift away from free-bags and towards paid seating assignments isn’t a crowd pleaser, unless you’re nuts. Then again, I do see WN flies from CMH to quite a few places, so maybe you are!
Simple – their greed ruined a great airline – now they’re just a wanna-be bullshit airline like all the rest.
Hopefully they will come to their senses and bring back the two free bags policy and open seating.
The things that set them apart – that literally everyone liked.
Not to mention that they are more exp for less now.
Get rid of this new idiot owner.
no, 1990, companies really can satisfy ALL of their stakeholders – customers, employees, and stockholders.
WN used to do all of that very well. They just failed to adapt.
I never doubted they would figure it out and they have the benefit of outstanding credit and plenty of cash.
and what is most notable is how quickly WN is turning it around; some companies tinker w/ a thing or two but WN blew it all up and rebuilt in record speed.
They will be fine and no merger will be necessary.
DL and WN will both benefit from the chaos and fighting at and between AA and UA.
Let’s not forget that in addition to baggage charges and seating charges, their change policy has changed dramatically. While I rarely ever changed my flight over the 35+ years I’ve been flying with them, it was always nice to know that if a change was required, I could do so without having to add hundreds of dollars to the price of my ticket. And, while I’m no fan of AA, at least you can choose their basic economy and choose to pay for a specific seat later. Not so with SWA. You either choose that much more expensive option up front or you are stuck with whatever seat they give you. And, honestly, with the way they are operating, I wouldn’t be surprised if they intentionally assign the worst seats available to “punish” you for not paying more.
Even before the changes, I noticed quite an increase in their pricing – often times costing more than the other airlines even when considering the free bags. I have booked 3 flights since they’ve announced the changes and none of them were on SWA when in the past, they all would have been.
It looks like there will be one of two outcomes:
1) Customers lose – Shareholders win
2) Customers lose – Shareholders lose
I understand companies are there to make a profit and answer to shareholders, but this seems to go beyond that.
And finally, one of the great things about SWA was their friendly, often funny, onboard service. No longer. They’re rude and seem to hate their jobs.