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Southwest Airlines (LUV)
NYSE:LUV
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Southwest Airlines (LUV) AI Stock Analysis

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LUV

Southwest Airlines

(NYSE:LUV)

Rating:62Neutral
Price Target:
$35.00
▲(5.23%Upside)
Southwest Airlines' overall stock score reflects a company in recovery mode, with significant potential offset by current economic challenges and high valuation. The company's strategic initiatives and operational improvements are promising, but macroeconomic factors and cash flow issues present risks. The cautious optimism from the earnings call and ongoing share repurchase program support a balanced outlook.
Positive Factors
International Partnerships
The interline partnership with China Airlines will increase Southwest's international connectivity.
Operational Strategies
Southwest reported a narrower-than-anticipated loss reflecting record first-quarter revenue and accelerated cost-cutting.
Strategic Initiatives
Southwest Airlines has realized $600M of its $1.8B initiatives for 2025, slightly ahead of expectations.
Negative Factors
Debt Levels
Southwest Airlines is transitioning to over $2B of net debt, contrasting with other airlines focusing on lowering net debt levels.
Macroeconomic Factors
The 2025 EBIT outlook has been significantly reduced due to macro headwinds, creating incremental earnings risk.
Profitability Challenges
The 3Q25 outlook implies an EPS loss, further indicating challenges in profitability.

Southwest Airlines (LUV) vs. SPDR S&P 500 ETF (SPY)

Southwest Airlines Business Overview & Revenue Model

Company DescriptionSouthwest Airlines Co. (NYSE: LUV) is a major American airline headquartered in Dallas, Texas. Founded in 1967, it operates one of the world's largest low-cost carrier services, primarily offering domestic flights within the United States. Southwest Airlines is renowned for its customer-friendly policies, including no change fees and two free checked bags, and focuses on point-to-point service rather than the traditional hub-and-spoke model.
How the Company Makes MoneySouthwest Airlines generates revenue primarily through the sale of passenger tickets, which is its largest revenue stream. The airline offers low-cost fares and targets cost-conscious travelers, which helps maintain high load factors. Additionally, Southwest earns ancillary revenue from services such as EarlyBird Check-In, which allows passengers to secure a better boarding position, and other optional services. The company also benefits from partnerships with hotels, car rental agencies, and other travel-related businesses, enhancing its revenue through loyalty programs and cross-promotional activities. Furthermore, Southwest Airlines has a robust Rapid Rewards program that helps drive customer loyalty and repeat business, contributing significantly to its financial performance.

Southwest Airlines Key Performance Indicators (KPIs)

Any
Any
Revenue from Carried Passengers
Revenue from Carried Passengers
Shows income generated from passenger travel, indicating demand for flights and pricing power in the market.
Chart InsightsSouthwest Airlines has shown a strong recovery in passenger revenue since the pandemic lows, with recent quarters surpassing pre-pandemic levels. Despite this growth, the latest earnings call highlights challenges with weakening leisure demand and macroeconomic uncertainties, which could impact future revenue. The company is addressing these issues through strategic initiatives like introducing basic economy and reducing flight credit expiration. Operational excellence and cost management remain priorities, as evidenced by record operating revenue and significant cost reductions, positioning Southwest to navigate potential headwinds effectively.
Data provided by:Main Street Data

Southwest Airlines Earnings Call Summary

Earnings Call Date:Jul 23, 2025
(Q2-2025)
|
% Change Since: -11.16%|
Next Earnings Date:Oct 23, 2025
Earnings Call Sentiment Neutral
Southwest Airlines is undergoing a significant transformation with the introduction of new products and enhancements, showing strong operational execution and strategic expansion. However, the company faces challenges from a weaker macroeconomic environment and initial hiccups in the rollout of its basic economy product. Despite these challenges, the overall sentiment leans towards cautious optimism, supported by strong capital allocation and operational improvements.
Q2-2025 Updates
Positive Updates
Introduction of Bag Fees and Basic Economy
Southwest Airlines successfully implemented bag fees and a basic economy product on May 28, which have exceeded revenue expectations and had no negative impact on operations.
Transformation and New Initiatives
Southwest is on a transformational journey, with the introduction of assigned and premium seating set to begin on January 27. The company has also launched new benefits for its Chase co-branded credit cards.
Industry-Leading On-Time Performance
Southwest Airlines led the industry in on-time performance for the first half of 2025, reflecting strong operational management.
Strong Capital Allocation and Share Repurchase
The Board of Directors authorized a new $2 billion share repurchase program over the next two years, reflecting confidence in the company's strategic plan and financial health.
Improved Aircraft Utilization
Southwest Airlines exceeded 2019 aircraft utilization levels through the introduction of red-eye flights and other operational efficiencies.
Expansion Initiatives
Southwest announced new services to St. Thomas and formed new partnerships with Icelandair and China Airlines, expanding its network.
Negative Updates
Macro Environment Challenges
The company experienced a $1 billion decrease in EBIT guidance due to a decline in the macro environment, impacting industry demand.
Revenue and Load Factor Decline
Second quarter 2025 RASM was down 3.1% year-over-year, and load factor was down over 400 basis points compared to the previous year.
Challenges with Basic Economy Rollout
The implementation of the basic economy product initially faced challenges, resulting in lower conversion rates and a temporary decline in bookings.
Increased Fuel Costs
The company faced a $100 million decrease in expected EBIT due to higher fuel costs.
Company Guidance
During the Southwest Airlines Second Quarter 2025 Conference Call, the company provided guidance with a focus on their transformational plan and financial outlook. They updated their full-year EBIT guidance to between $600 million and $800 million, revised from a previous $1.7 billion, citing a $1 billion decrease due to a weakening macroeconomic environment and a $100 million impact from higher fuel costs. The company reiterated its expectation of $1.8 billion in EBIT contribution from ongoing initiatives in 2025, with these initiatives expected to drive significant EBIT expansion in 2026. The guidance also highlighted a $2 billion share repurchase program to be completed over two years, underscoring their belief in the transformational plan and management's ability to deliver shareholder value. The airline reported a disciplined approach to cost management and set a liquidity target of $4.5 billion, maintaining a robust balance sheet to support future initiatives.

Southwest Airlines Financial Statement Overview

Summary
Southwest Airlines shows a solid recovery trajectory with increasing revenue and improved profitability margins. However, challenges in generating free cash flow and relatively low EBIT and EBITDA margins highlight areas for improvement.
Income Statement
72
Positive
Southwest Airlines demonstrates a strong recovery trajectory with a consistent increase in total revenue over the years, reaching $27.58 billion in the TTM. The gross profit margin improved significantly from negative in 2020 to approximately 26.3% in the TTM, indicating enhanced operational efficiency. The net profit margin, while modest at 1.98% in the TTM, reflects a positive trend from previous losses. However, the EBIT and EBITDA margins remain relatively low, signaling room for improvement in core earnings. Overall, the income statement reflects a solid recovery with potential for stronger profitability.
Balance Sheet
68
Positive
The balance sheet reveals a stable financial position with a notable cash reserve of $8.25 billion in the TTM. The debt-to-equity ratio decreased to approximately 0.42, indicating manageable leverage and improved financial stability. The equity ratio stands at 43.6%, suggesting a healthy proportion of equity financing. However, the return on equity (ROE) at 5.83% in the TTM is relatively low, highlighting the need for enhanced profitability to maximize shareholder returns. The balance sheet reflects a stable financial structure with a conservative approach to debt management.
Cash Flow
58
Neutral
The cash flow statement shows a mixed performance with an operating cash flow of $1.43 billion in the TTM, suggesting operational stability. However, the free cash flow remains negative at -$563 million due to higher capital expenditures, indicating potential challenges in generating surplus cash for investments. The operating cash flow to net income ratio is strong, reflecting efficient cash generation relative to profits. Despite improvements, the cash flow position requires attention to enhance liquidity and support growth initiatives.
BreakdownDec 2024Dec 2023Dec 2022Dec 2021Dec 2020
Income Statement
Total Revenue27.48B26.09B23.81B15.79B9.05B
Gross Profit4.46B4.22B4.75B4.12B-1.89B
EBITDA2.47B2.39B2.38B3.03B-2.70B
Net Income465.00M465.00M539.00M977.00M-3.07B
Balance Sheet
Total Assets33.75B36.49B35.37B36.32B34.59B
Cash, Cash Equivalents and Short-Term Investments8.72B11.47B12.29B15.50B13.33B
Total Debt8.06B9.23B9.43B12.28B12.20B
Total Liabilities23.40B25.97B24.68B25.91B25.71B
Stockholders Equity10.35B10.52B10.69B10.41B8.88B
Cash Flow
Free Cash Flow-1.62B-389.00M-156.00M1.81B-1.64B
Operating Cash Flow462.00M3.16B3.79B2.32B-1.13B
Investing Cash Flow-261.00M-2.93B-3.75B-1.26B-16.00M
Financing Cash Flow-1.98B-436.00M-3.03B359.00M9.66B

Southwest Airlines Technical Analysis

Technical Analysis Sentiment
Negative
Last Price33.26
Price Trends
50DMA
33.39
Negative
100DMA
31.34
Positive
200DMA
31.34
Positive
Market Momentum
MACD
1.00
Positive
RSI
42.15
Neutral
STOCH
52.24
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For LUV, the sentiment is Negative. The current price of 33.26 is below the 20-day moving average (MA) of 35.22, below the 50-day MA of 33.39, and above the 200-day MA of 31.34, indicating a neutral trend. The MACD of 1.00 indicates Positive momentum. The RSI at 42.15 is Neutral, neither overbought nor oversold. The STOCH value of 52.24 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for LUV.

Southwest Airlines Risk Analysis

Southwest Airlines disclosed 24 risk factors in its most recent earnings report. Southwest Airlines reported the most risks in the "Legal & Regulatory" category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks

Southwest Airlines Peers Comparison

Overall Rating
UnderperformOutperform
Sector (68)
Financial Indicators
Name
Overall Rating
Market Cap
P/E Ratio
ROE
Dividend Yield
Revenue Growth
EPS Growth
82
Outperform
$31.11B14.7827.12%0.05%10.61%37.32%
80
Outperform
$29.05B8.9927.70%4.23%13.13%
79
Outperform
$36.55B8.1230.07%1.10%3.01%-0.90%
68
Neutral
€2.78B22.937.73%2.84%-1.29%-31.61%
62
Neutral
$21.34B56.624.30%2.16%1.64%284.24%
60
Neutral
$8.36B14.64-21.27%1.50%
47
Neutral
$1.54B-11.30%-3.02%66.90%
* Industrials Sector Average
Performance Comparison
Ticker
Company Name
Price
Change
% Change
LUV
Southwest Airlines
33.26
5.82
21.21%
DAL
Delta Air Lines
54.71
11.75
27.35%
JBLU
JetBlue Airways
4.36
-1.67
-27.69%
RYAAY
Ryanair Holdings
62.62
24.30
63.41%
UAL
United Airlines Holdings
89.73
43.01
92.06%
AAL
American Airlines
11.46
0.86
8.11%

Southwest Airlines Corporate Events

Stock BuybackBusiness Operations and StrategyFinancial Disclosures
Southwest Airlines Announces $2 Billion Share Buyback
Positive
Jul 23, 2025

On July 23, 2025, Southwest Airlines announced a new $2.0 billion share repurchase program, reflecting confidence in its transformational plan and strong management execution. The company reported a net income of $213 million for the second quarter of 2025 and highlighted several initiatives, including the introduction of bag fees and a basic economy product, which exceeded financial expectations. Despite a decrease in passenger and operating revenues, the company remains optimistic about future growth, supported by recent improvements in industry demand and its strategic initiatives.

The most recent analyst rating on (LUV) stock is a Buy with a $42.00 price target. To see the full list of analyst forecasts on Southwest Airlines stock, see the LUV Stock Forecast page.

Executive/Board ChangesShareholder Meetings
Southwest Airlines Concludes Annual Shareholders Meeting
Neutral
May 19, 2025

On May 14, 2025, Southwest Airlines held its Annual Meeting of Shareholders where several key proposals were voted on. Thirteen directors were elected for terms expiring in 2026, executive compensation was approved, Ernst & Young LLP was ratified as the independent auditor, and a shareholder proposal to amend the clawback policy for unearned executive pay was rejected.

The most recent analyst rating on (LUV) stock is a Buy with a $42.00 price target. To see the full list of analyst forecasts on Southwest Airlines stock, see the LUV Stock Forecast page.

Legal ProceedingsRegulatory Filings and Compliance
Southwest Airlines Amends Bylaws Following Texas Code Changes
Neutral
May 19, 2025

On May 16, 2025, Southwest Airlines‘ Board of Directors approved amendments to the company’s bylaws in response to changes in the Texas Business Organizations Code. These amendments set a minimum ownership threshold for shareholders to initiate derivative proceedings and designate specific courts for internal claims, while also waiving the right to a jury trial for such claims. These changes aim to streamline legal processes and potentially impact shareholder litigation dynamics.

The most recent analyst rating on (LUV) stock is a Buy with a $42.00 price target. To see the full list of analyst forecasts on Southwest Airlines stock, see the LUV Stock Forecast page.

Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.Date of analysis: Jul 25, 2025