Southwest Airlines (LUV) - Q4 2025 Earnings Call
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Call Details
Call Title: Southwest Airlines Q4 2025 Earnings Call
Date Held: January 29, 2026
Management Team Members Present:
Bob Jordan, President and Chief Executive Officer
Andrew Watterson, Chief Operating Officer
Tom Doxey, Chief Financial Officer
Danielle Collins, Managing Director of Investor Relations
Call Summary
Financial Performance
Southwest Airlines reported a full-year EBIT of $574 million, exceeding their guidance of $500 million. The fourth quarter’s operating revenues reached $7.4 billion, marking a record quarterly and annual total of $28 billion.
“Our fourth quarter and full year results underscore that our initiatives are generating the desired results and provide great momentum as we head into 2026,” stated Bob Jordan, highlighting robust operational performance.
The company’s CASMX (cost per available seat mile excluding fuel) increased by 0.8% year-over-year in Q4, attributing solid cost performance despite operational challenges.
“We expect continued strong cost discipline with CASMX projected to increase approximately 3.5% year-over-year,” noted Tom Doxey while discussing their investment strategies.
Revenue passenger miles (RPM) data and other metrics confirm strong demand, and the company finished the year leading in several operational benchmarks such as on-time performance and reliability.
Adjusted EPS guidance for 2026 stands at “at least $4“, a significant improvement over the 93 cents from 2025.
In terms of capacity, Southwest plans to grow capacity 1-2% in Q1 while optimizing operational efficiencies, aiming for a 9.5% RASM increase year-over-year.
Guidance
Specific guidance for 2026 projected adjusted EPS of “at least $4“, which is more than the consensus view, with additional upside potential expected from recent product offerings and operational initiatives.
The guidance strategy incorporates a focus on broader company forecasts, moving away from granular specifics like individual bag fees or ancillary products, as explained by Bob Jordan.
Andrew Watterson emphasized the anticipated results from “new product enhancements, assigned seating and our extra legroom offering” as key drivers for growth in 2026.
Capital Allocation
2025 saw $2.6 billion in share buybacks, representing approximately 14% of shares outstanding, alongside a $399 million dividend payout.
For 2026, the net capital expenditure is expected to be between $3 billion and $3.5 billion, inclusive of 66 Boeing 737-8 deliveries and the retirement of 60 aircraft, supporting its operational fleet strategy.
Management is emphasizing efficient use of capital while maintaining investment-grade rating metrics, ensuring future investments align with growth and operational excellence targets.
Macro & Demand Trends
Demand trends have remained strong into 2026, with a focus on increased corporate presence that strengthens the airline’s position in business travel.
“We continue to expect growth in both the business and leisure customer base driven by our new, more attractive product offering,” stated Bob Jordan, signaling responsiveness to market needs.
The company noted trends indicating mid-single-digit growth in corporate bookings in Q4, signaling solid foundations for future customer acquisition strategies.
Competition
Management highlighted that although ancillary revenues from new product offerings might create initial surprises, they differ from traditional fee structures, positioning Southwest Airlines favorably against competitors.
Bob noted, “We are committed to following the customer,” emphasizing the necessity of adapting to evolving customer preferences as competition intensifies within the industry.
Expense and Headcount Trends
“We plan to keep management headcount expense flat to 2025 levels in 2026,” reflected Tom Doxey, suggesting a disciplined approach to operational costs amid transformative initiatives.
Cost-cutting measures have included staff optimization in non-contract and management roles, alongside innovative operational efficiencies without compromising service quality.
Product Updates
Recent initiatives included the launch of assigned seating and extra legroom offerings, “these products are expected to be meaningful contributors to further revenue growth and customer satisfaction in 2026,” according to Andrew Watterson.
Changes in the Rapid Rewards program, co-brand credit card agreements with Chase, and enhancements in digital capabilities have collectively strengthened customer loyalty and engagement.
NOTABLE QUOTES
“In my 38-year career in this industry, I cannot think of another airline that embarked on so many fundamental changes to their business model and in such a short time.” - Bob Jordan
“The new products represent a fundamental transformation in how Southwest delivers value to customers.” - Andrew Watterson
“This transformation is expected to result in a significant step up in how we grow earnings.” - Bob Jordan
“All of this change is driven from a revenue benefit perspective by offering customers choice.” - Bob Jordan
“The changes implemented are not initiatives any longer. They are the new business of Southwest Airlines.” - Bob Jordan
“We will continue to be opportunistic [in our buybacks] and stay within the guardrails that keep us with our investment-grade rating.” - Tom Doxey
“There’s no assumption of a big snapback in the macro.” - Bob Jordan
“What we are seeing is that they are choosing to buy those new options.” - Bob Jordan
“We have a very strong network... price, we have lower costs than our competitors.” - Andrew Watterson
“The response from customers has been overwhelmingly positive.” - Andrew Watterson
Q&A SUMMARY
Q: Catherine O’Brien (Goldman Sachs), “How does January book drafts compare to February and what potential upside are you evaluating for EPS?”
A: Bob Jordan responded that all data regarding new initiatives looks very good, but they are not yet ready to provide an upper range for EPS guidance. They are assessing booking behaviors and potential upsell revenue, particularly around business travelers.
Q: Connor Cunningham (Melius Research), “Could you explain the load factor decline in Q4 and if there were any shifts in the ATL?”
A: Andrew Watterson explained that load factor metrics are not a direct focus as they manage primarily on RASM. Ongoing efficiency initiatives allowed the company to maximize revenue without prioritizing load factor metrics.
Q: Jamie Baker (JPMorgan), “Why didn’t we see a surge in early bird bookings with the assigned seating changes?”
A: Andrew Watterson clarified that early bird booking was not heavily promoted ahead of the changes to avoid customer confusion, and noted that standalone ancillary seats have seen higher demand.
Q: Savi Seth (Raymond James), “How has the CAPEX guide changed in light of new corporate growth strategies?”
A: Tom Doxey indicated that while details on specific line items would not be provided, the overall capital spending reflects their commitment to growing corporate market share, among other operational tools.
Q: Dwayne Fenningworth (Evercore ISI), “Can you discuss what changes you foresee in revenue recognition with your new loyalty program?”
A: Tom Doxey acknowledged revenue recognition has adjusted to accommodate new product offerings, with an increased capacity to recognize loyalty revenues sooner due to differentiated programs.
Q: David Vernon (Bernstein), “Is there concern about demand elasticity impacting future fare increases?”
A: Bob Jordan stated that rather than raising fares, the focus is on offering choices that customers can make, emphasizing continued customer loyalty and satisfaction without sacrificing competitive pricing.
Q: Robbie Shanker (Morgan Stanley), “What operational impacts have you observed from changes to seat policies?”
A: Andrew Watterson confirmed that they have streamlined turn times to manage changes effectively, highlighting operational efficiencies associated with the new seating policies without detracting from the customer experience.
Q: Mike Lindenberg (Deutsche Bank), “Can you discuss your approach to segmentation and how it might evolve?”
A: Andrew Watterson elaborated that they are moving towards product-based segmentation, where current customers have shown willingness to pay for enhanced features, altering the historical sales composition.
Q: Brandon Oglenski (Barclays), “How has corporate sentiment shifted with new product offerings?”
A: Andrew Watterson noted strong early indicators of corporate bookings returning, driven by the appealing new product offerings that enhance expense reporting for businesses.
Q: Jamie Baker (JPMorgan), “Have you adjusted operational strategies for potential upselling at the gate?”
A: Andrew Watterson confirmed that operational adjustments have been made to allow for efficient processing of upsells while maintaining optimized turn times for flights.
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