Southwest Airlines (LUV) AI Stock Analysis

• Market Cap: $16.94B
• Dividend Yield: 2.31%
• Average Volume (3M): 9.41M
• Price to Earnings (P/E): 48.5
• Beta (1Y): 1.07
• Revenue Growth: 1.64%
• EPS Growth: 284.24%
• Country: US
• Employees: 71,506
• Sector: Industrials
• Sector Strength: 73
• Industry: Airlines, Airports & Air Services
• EPS (TTM): 0.43
• Shares Outstanding: 525,187,700
• 10 Day Avg. Volume: 5,491,992
• 30 Day Avg. Volume: 9,405,128
• PEG Ratio: N/A
• Price to Book (P/B): N/A
• Price to Sales (P/S): N/A
• P/FCF Ratio: N/A
• Enterprise Value/Market Cap: 1.12
• Enterprise Value/Revenue: 0.69
• Enterprise Value/Gross Profit: 4.24
• Enterprise Value/Ebitda: 8.25
• 1Y Price Target: $29.77
• Price Target Upside: -4.34% Downside
• Rating Consensus: Hold
• Number of Analyst Covering: 12

• Rating: 58 Neutral
• Price Target: $32.00 ▲(2.83% Upside)

Southwest Airlines faces significant challenges with a high P/E ratio and macroeconomic pressures impacting profitability. However, the company's strong balance sheet and strategic initiatives provide a foundation for potential future growth. The technical indicators suggest a neutral market sentiment, and the dividend yield offers some income potential. Overall, the stock score reflects a cautious outlook with room for improvement if strategic plans are successfully executed.

Positive Factors

Cost Management

Management has successfully implemented strategies that led to cost reductions, with two-thirds of managers reporting lower costs in the first quarter.

Revenue Growth

Southwest Airlines’ current/pending initiatives, such as assigned seating, checked bag fees and inflows from foreign partnerships could support higher unit revenue.

Strategic Partnerships

Southwest Airlines and Taiwan-based China Airlines jointly announced ongoing talks for an interline partnership, representing Southwest's first Transpacific partner out of California gateways.

Negative Factors

Debt Levels

Southwest Airlines is transitioning to over $2B of net debt, contrasting with other airlines focusing on lowering net debt levels.

Earnings Performance

Southwest Airlines' 2Q25 EPS of $0.43 missed estimates, indicating weaker performance than expected.

Profitability Challenges

The 3Q25 outlook implies an EPS loss, further indicating challenges in profitability.

Southwest Airlines Business Overview & Revenue Model

Company Description

Southwest Airlines Co. (LUV) is a major American airline headquartered in Dallas, Texas, known for its low-cost, no-frills travel model. Founded in 1967, the airline operates a large domestic route network and has recently expanded its international presence. Southwest primarily serves the passenger air transportation sector and is recognized for its unique approach of point-to-point service, which contrasts with the traditional hub-and-spoke model used by many competitors. The company also focuses on customer service and operational efficiency as part of its core offerings.

How the Company Makes Money

Southwest Airlines generates revenue primarily through ticket sales, which constitute the bulk of its income. The airline employs a low-cost fare structure that encourages high volume travel while also offering various fare classes to cater to different customer segments. Additionally, Southwest earns revenue from ancillary services, such as early boarding, baggage fees, and in-flight sales, though it prides itself on having no change fees which can attract more travelers. The company also benefits from partnerships with hotels, car rental companies, and travel agencies, allowing customers to bundle services and generating additional revenue streams. The loyalty program, Rapid Rewards, also contributes to repeat business and customer retention, enhancing overall profitability.

Southwest Airlines Financial Statement Overview

Summary

Southwest Airlines maintains a stable financial position with strong equity and low leverage, but faces challenges in profitability and cash flow generation. The company demonstrates resilience with solid operating cash flow but needs to address its declining revenue growth and negative free cash flow to enhance profitability and investor returns.

Income Statement

Southwest Airlines shows a stable gross profit margin at 34.1% for TTM, with a modest net profit margin of 1.4%. Revenue growth is low with a slight decline of 0.04% in the latest annual data. The EBIT margin is weak at 1.2%, reflecting operational challenges. However, the EBITDA margin of 8.5% indicates decent operating cash generation despite low profitability.

Balance Sheet

The company's balance sheet is strong, with a low debt-to-equity ratio of 0.16 as of TTM, which suggests financial stability. The equity ratio of 47.2% denotes a solid equity base. Despite this, the return on equity is relatively low at 4.9%, indicating limited profitability on shareholders' investments.

Cash Flow

The cash flow situation is mixed, with a negative free cash flow reflecting high capital expenditures. The operating cash flow to net income ratio is robust at 4.72, demonstrating efficient cash conversion. However, the free cash flow to net income ratio is negative, indicating challenges in generating free cash.

Breakdown	TTM	Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Income Statement
Total Revenue	27.47B	27.48B	26.09B	23.81B	15.79B	9.05B
Gross Profit	4.49B	4.46B	4.22B	4.75B	4.12B	-1.89B
EBITDA	2.31B	2.47B	2.39B	2.38B	3.03B	-2.69B
Net Income	392.00M	465.00M	465.00M	539.00M	977.00M	-3.07B
Balance Sheet
Total Assets	28.71B	33.75B	36.49B	35.37B	36.32B	34.59B
Cash, Cash Equivalents and Short-Term Investments	3.84B	8.72B	11.47B	12.29B	15.50B	13.33B
Total Debt	5.34B	8.06B	9.20B	9.47B	12.28B	12.20B
Total Liabilities	20.71B	23.40B	25.97B	24.68B	25.91B	25.71B
Stockholders Equity	8.00B	10.35B	10.52B	10.69B	10.41B	8.88B
Cash Flow
Free Cash Flow	-273.00M	-1.62B	-389.00M	-156.00M	1.81B	-1.64B
Operating Cash Flow	1.85B	462.00M	3.16B	3.79B	2.32B	-1.13B
Investing Cash Flow	272.00M	-261.00M	-2.93B	-3.75B	-1.26B	-16.00M
Financing Cash Flow	-6.79B	-1.98B	-436.00M	-3.03B	359.00M	9.66B

Southwest Airlines Technical Analysis

• Technical Analysis Sentiment: Negative
• Last Price: 31.12
• 50DMA: Negative
• 100DMA: Negative
• 200DMA: Negative
• MACD: Negative
• RSI: Neutral
• STOCH: 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 31.12 is below the 20-day moving average (MA) of 31.38, below the 50-day MA of 32.70, and below the 200-day MA of 31.31, indicating a bearish trend. The MACD of 0.04 indicates Negative momentum. The RSI at 44.19 is Neutral, neither overbought nor oversold. The STOCH value of 38.28 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for LUV.

Southwest Airlines Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
UAL	82 Outperform	$33.89B	10.64	27.70%	―	4.23%	13.13%
DAL	80 Outperform	$39.91B	8.87	30.07%	1.05%	3.01%	-0.90%
ALK	69 Neutral	$7.22B	25.40	7.66%	―	27.81%	43.03%
AAL	66 Neutral	$8.84B	17.28	-21.27%	―	1.50%	―
Sector *	64 Neutral	$10.73B	15.65	7.61%	2.01%	2.80%	-14.92%
LUV	58 Neutral	$16.94B	48.50	4.30%	2.31%	1.64%	284.24%
JBLU	56 Neutral	$2.00B	―	-15.12%	―	-1.90%	61.06%

Southwest Airlines Corporate Events

Southwest Airlines Announces $2 Billion Share Buyback

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.