Southwest Airlines reported full-year net income of $441 million for 2025 and said it expects a sharp improvement in profitability in 2026 as its business transformation and new product initiatives begin to feed through into revenues.
The US carrier generated adjusted EBIT of $574 million, ahead of its prior guidance, and is guiding to adjusted earnings per share of at least $4.00 in 2026, more than four times its 2025 level.
Management said early booking trends for assigned seating and extra-legroom products point to upside potential, particularly from business and price-flexible customers.
Fourth-quarter performance was supported by lower-than-expected non-fuel costs, according to TD Cowen, although revenue growth remained yield-led rather than volume-driven, with load factor below expectations.
Southwest continued its fleet renewal programme in 2025, taking delivery of 55 Boeing 737-8 aircraft and retiring 55 aircraft, including 48 737-700s and seven 737-800s. This included the sale of five 737-800s during the year. The carrier ended 2025 with a fleet of 803 aircraft.
In the fourth quarter alone, Southwest received 19 737-8s and retired 18 aircraft, including 14 737-700s and the sale of four 737-800s.
For 2026, the airline expects to take delivery of 66 Boeing 737-8 aircraft and to retire approximately 60 aircraft, continuing the upgauging and modernisation of its all-Boeing narrowbody fleet.
Net capital expenditure in 2025 totalled $2.6 billion, with 2026 capex expected to rise to between $3.0 billion and $3.5 billion, reflecting higher aircraft delivery volumes.
Southwest said six seats will be removed from its 737-700 fleet to enable extra-legroom seating, contributing to higher unit costs in early 2026 but supporting premium revenue growth.
The carrier ended 2025 with $3.2 billion in cash and cash equivalents and access to a $1.5 billion revolving credit facility. Leverage stood at 2.4x.
Southwest retired $3.3 billion of debt and finance lease obligations during the year, including $1.6 billion of convertible notes and the prepayment of $1.6 billion under the US Payroll Support Program. In November, the airline issued $1.5 billion of unsecured bonds at what it described as industry-leading terms.
It also returned $2.9 billion to shareholders through dividends and share repurchases, including $2.6 billion of buybacks, while maintaining its investment-grade credit rating.
Management said its new product offering – including assigned seating, extra-legroom seats and basic economy fares – is driving improved close-in booking performance and strengthening demand from business and price-flexible travellers.
TD Cowen noted that revenue growth in the fourth quarter remained yield-driven, despite management’s earlier expectation that volume would play a greater role. However, Southwest’s guidance for first-quarter 2026 assumes RASM growth of at least 9.5%, well ahead of market expectations.
The airline said it expects further upside from upsell revenues tied to premium seating and improved distribution as customers adjust to the new fare and seating structure.
Southwest expects 2026 capacity growth of 2% to 3% and said it will provide a fuller earnings range later in the first quarter as visibility improves on booking behaviour under its new product model.
TD Cowen said the strong guidance and cost performance increase the likelihood of further positive earnings revisions, with shares rising more than 5% in after-hours trading following the results.