Southwest Airlines (LUV) AI Stock Analysis

• Market Cap: $26.92B
• Dividend Yield: 1.73%
• Average Volume (3M): 10.13M
• Price to Earnings (P/E): 69.2
• Beta (1Y): 0.97
• Revenue Growth: 0.65%
• EPS Growth: N/A
• Country: US
• Employees: 71,506
• Sector: Industrials
• Sector Strength: 72
• Industry: Airlines, Airports & Air Services
• EPS (TTM): 0.58
• Shares Outstanding: 491,318,000
• 10 Day Avg. Volume: 9,287,993
• 30 Day Avg. Volume: 10,129,145
• PEG Ratio: 40.99
• Price to Book (P/B): 2.80
• Price to Sales (P/S): 0.80
• P/FCF Ratio: -26.86
• Enterprise Value/Market Cap: 1.10
• Enterprise Value/Revenue: 1.06
• Enterprise Value/Gross Profit: 6.07
• Enterprise Value/Ebitda: 13.27
• 1Y Price Target: $50.97
• Price Target Upside: -2.15% Downside
• Rating Consensus: Moderate Buy
• Number of Analyst Covering: 17
• EPS Forecast (FY): 4.11
• Revenue Forecast (FY): $31.66B

• Rating: 61 Neutral
• Price Target: $58.00 ▲(11.35% Upside)
• Action: Reiterated Date: 01/30/26
• Date: Action: Reiterated 01/30/26

The score is held back primarily by weak and volatile free cash flow and thin current margins despite improved revenue and balance-sheet deleveraging. Technicals are supportive with a strong uptrend, but an overbought RSI adds near-term risk. Valuation is a headwind due to a high P/E, partially offset by a constructive earnings call featuring strong 2026 EPS and RASM guidance.

Positive Factors

Low-cost point-to-point model and loyalty

Southwest’s entrenched low-cost, point-to-point model and Rapid Rewards loyalty program create durable demand resilience and high aircraft utilization. This business design supports repeat customers, steady ancillary revenue streams, and structural unit-cost advantages versus legacy networks, sustaining margin potential over time.

Delivered large transformation program

Management executed a broad, multi-year transformation on time—fees, basic economy, assigned seating, partnerships, tech upgrades and aircraft retrofits. Those changes materially reshape product mix, diversify revenue (ancillaries/upsell), and improve operational efficiency and reliability, strengthening competitive positioning long term.

Stronger balance sheet and sizable capital returns

Recovering leverage and a multi-billion cash buffer alongside large buybacks and dividends signal materially improved financial flexibility. Healthier gross leverage and demonstrated capacity for returns imply the balance sheet can support fleet investment, product rollout and shareholder actions while absorbing cyclical airline shocks.

Negative Factors

Weak free cash flow conversion

Near‑breakeven and volatile free cash flow undermines durable financial flexibility. It restricts the company’s ability to fund capex, sustain buybacks/dividends, reduce debt, or weather downturns without relying on external financing. Persistent cash conversion issues heighten execution risk for strategic initiatives.

Compressed margins and thin profitability

Margins remain well below prior peak levels, leaving limited buffers against fuel, labor, or demand shocks. Thinner operating profitability reduces reinvestment capacity and return on capital, making long‑term earnings more sensitive to cyclical downturns and cost inflation in a capital‑intensive industry.

Ancillary uptake uncertainty and near-term cost pressure

Guided CASM‑X increases and unclear pace of ancillary and upsell adoption create structural risk to margin recovery. If ancillary behaviors don’t scale as expected while unit costs rise, profitability improvement from the transformation may be muted, pressuring sustainable earnings and free cash flow generation.

Southwest Airlines Business Overview & Revenue Model

Company Description

Southwest Airlines Co. operates as a passenger airline company that provide scheduled air transportation services in the United States and near-international markets. As of December 31, 2021, the company operated a total fleet of 728 Boeing 737 aircrafts; and served 121 destinations in 42 states, the District of Columbia, and the Commonwealth of Puerto Rico, as well as 10 near-international countries, including Mexico, Jamaica, the Bahamas, Aruba, the Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos. It also provides inflight entertainment and connectivity services on Wi-Fi enabled aircrafts; and Rapid Rewards loyalty program that enables program members to earn points for dollars spent on Southwest base fares. In addition, the company offers a suite of digital platforms to support customers' travel needs, including websites and apps; and SWABIZ, an online booking tool. Further, it provides ancillary services, such as Southwest's EarlyBird Check-In, upgraded boarding, and transportation of pets and unaccompanied minors. The company was incorporated in 1967 and is headquartered in Dallas, Texas.

How the Company Makes Money

Southwest Airlines generates revenue primarily through the sale of passenger tickets, which constitutes the bulk of its earnings. The airline employs a low-cost carrier business model, focusing on short-haul flights that allow for quick turnaround times and high aircraft utilization. Additional revenue streams include ancillary services such as checked baggage fees, in-flight services, and priority boarding. The company also benefits from partnerships with travel-related businesses, including hotel chains and car rental services, which further enhance its revenue through cross-promotional opportunities. Additionally, its loyalty program, Rapid Rewards, drives repeat business and contributes to customer retention, thus solidifying its revenue base.

Southwest Airlines Financial Statement Overview

Summary

Revenue has recovered meaningfully and the balance sheet is healthier with sharply lower debt and a moderate debt-to-equity profile, but current profitability is thin versus prior peaks. The key drag is cash conversion: free cash flow is near breakeven and deteriorated significantly (including large negative FCF in 2024), limiting financial flexibility.

Income Statement

Revenue has expanded meaningfully since 2020 and remains up in TTM (Trailing-Twelve-Months), indicating continued demand resilience. However, profitability has compressed versus 2021–2022 levels: gross and operating margins are materially lower, and net margin in TTM (Trailing-Twelve-Months) is thin despite positive earnings. Overall, the income statement shows recovery and growth, but with weaker margin quality and limited buffer against cost or pricing pressure.

Balance Sheet

Leverage has improved markedly versus 2020–2023, with total debt down sharply in TTM (Trailing-Twelve-Months) and a moderate debt-to-equity profile. Equity remains sizable, and returns on equity are positive but modest, reflecting relatively low profitability for the capital employed. The balance sheet is healthier than prior years, though earnings power still looks subdued relative to the asset base.

Cash Flow

Cash generation is the key weak spot: while operating cash flow is positive in TTM (Trailing-Twelve-Months), free cash flow is near breakeven and has deteriorated significantly versus prior periods, including large negative free cash flow in 2024. Free cash flow also fails to consistently track reported earnings, signaling that reinvestment and working-capital needs are consuming cash. This reduces flexibility for debt reduction, shareholder returns, or downturn protection.

Breakdown	Dec 2025	Dec 2024	Dec 2023	Dec 2022	Dec 2021
Income Statement
Total Revenue	28.06B	27.48B	26.09B	23.81B	15.79B
Gross Profit	4.89B	4.46B	4.22B	4.75B	4.12B
EBITDA	2.24B	2.47B	2.39B	2.38B	3.03B
Net Income	441.00M	465.00M	465.00M	539.00M	977.00M
Balance Sheet
Total Assets	29.06B	33.75B	36.49B	35.37B	36.32B
Cash, Cash Equivalents and Short-Term Investments	3.23B	8.72B	11.47B	12.29B	15.50B
Total Debt	5.98B	8.06B	9.20B	9.47B	12.28B
Total Liabilities	21.08B	23.40B	25.97B	24.68B	25.91B
Stockholders Equity	7.98B	10.35B	10.52B	10.69B	10.41B
Cash Flow
Free Cash Flow	-831.00M	-1.62B	-389.00M	-156.00M	1.81B
Operating Cash Flow	1.84B	462.00M	3.16B	3.79B	2.32B
Investing Cash Flow	-1.43B	-261.00M	-2.93B	-3.75B	-1.26B
Financing Cash Flow	-4.69B	-1.98B	-436.00M	-3.03B	359.00M

Southwest Airlines Technical Analysis

• Technical Analysis Sentiment: Positive
• Last Price: 52.09
• 50DMA: Positive
• 100DMA: Positive
• 200DMA: Positive
• MACD: Positive
• RSI: Neutral
• STOCH: Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For LUV, the sentiment is Positive. The current price of 52.09 is above the 20-day moving average (MA) of 49.82, above the 50-day MA of 45.02, and above the 200-day MA of 35.50, indicating a bullish trend. The MACD of 2.65 indicates Positive momentum. The RSI at 60.13 is Neutral, neither overbought nor oversold. The STOCH value of 60.08 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for LUV.

Southwest Airlines Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
UAL	71 Outperform	$37.82B	10.76	23.99%	―	4.24%	20.29%
DAL	70 Outperform	$46.44B	9.29	27.70%	0.96%	4.33%	-1.58%
Sector *	63 Neutral	$10.79B	15.43	7.44%	2.01%	2.89%	-14.66%
LUV	61 Neutral	$26.92B	69.18	4.82%	1.73%	0.65%	―
ALK	56 Neutral	$6.40B	59.54	2.36%	―	31.50%	-49.15%
JBLU	50 Neutral	$2.39B	-3.55	-25.29%	―	-2.49%	47.88%
AAL	47 Neutral	$9.31B	80.37	―	―	1.27%	118.64%

Southwest Airlines Corporate Events

Southwest Airlines Announces Upcoming Board of Directors Changes

Southwest Airlines Co. announced that directors C. David Cush and Gregg A. Saretsky submitted their resignations from the company’s Board of Directors on February 9, 2026, with both resignations to take effect on February 23, 2026. The company emphasized that neither director’s departure resulted from any disagreement regarding Southwest’s operations, policies, or practices, suggesting a planned board transition rather than governance or strategic conflict.

The most recent analyst rating on (LUV) stock is a Buy with a $61.00 price target. To see the full list of analyst forecasts on Southwest Airlines stock, see the LUV Stock Forecast page.

Southwest Airlines Lowers 2025 EBIT Expectations Amid Challenges

Southwest Airlines has revised its expectations for full-year 2025 earnings before interest and taxes (EBIT), excluding special items, to approximately $500 million, down from the previous range of $600 million to $800 million. This adjustment is due to decreased revenue from a government shutdown and increased fuel prices, although bookings have since returned to expected levels.

The most recent analyst rating on (LUV) stock is a Hold with a $38.00 price target. To see the full list of analyst forecasts on Southwest Airlines stock, see the LUV Stock Forecast page.