On Jan. 27, Southwest Airlines began flying with assigned seats, thereby completing the final major step that it's announced so far in the wide-ranging transformation of its business model.
Now, the airline expects to reap the rewards of that work to the tune of at least quadrupled profits on a per-share basis for 2026.
Southwest is forecasting minimum earnings per share this year of $4, up the from the $0.93 earnings per share that it made last year. Both figures are adjusted for one one-time special items, such as labor-contract ratification bonuses and departure packages paid as part of its 15% corporate staff downsizing last spring.
During the company's earnings call on Jan. 29 to discuss Q4 and year-end earnings, CEO Bob Jordan and COO Andrew Watterson said the actual earnings per share figure for this year could be significantly higher, but the airline wants to gather another month or two of data on the revenue impact of new extra legroom and paid preferred seat assignments, especially for high yielding close-in bookings, before providing a top-end estimate to its outlook.
"Customer response has been overwhelmingly positive, and these products are expected to be meaningful contributors to further revenues and customer satisfaction in 2026," Watterson said.
For example, as a result of doing away with free bags and other all-in perks that were offered as part of its former lowest-level fare product, Wanna Getaway, Southwest now expects approximately half of its customers to buy up to higher-cost products, Watterson said, compared with less than 20% before the changes.
Southwest also estimates that its revenue per available seat mile, another key industry metric, will be 9.8% year-over-year in the first quarter, spurred by the changes it's made in the past year. Conversely, the airline expects cost per available seat mile to be up a much lower 3.5% in Q1.
Investors responded positively to Southwest's forecast, driving share prices up more than 15% in early afternoon trading.
"Southwest gets its mojo back," headlined the investment note of Deutsche Bank analyst Michael Linenberg, in a reference to years past when the carrier was a consistent profit leader among U.S. airlines.
The list of initiatives Southwest completed last year and through Tuesday is a long one.
It included retrofitting more than 800 aircraft with extra legroom configurations, adding a basic economy fare, implementing bag fee charges, launching the airline's first redeye flights, increasing its presence on OTAs and metasearch engines, downsizing corporate staffing, reaching interline agreements with six foreign airlines, introducing its Getaways by Southwest in-house vacation packager and implementing assigned seating.
"In my 38 years 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, let alone executed so well," Jordan said during the call. He made special note of the airline's smooth overnight transition this week to assigned seating and a new boarding procedure, which was accomplished just a day after the end of winter storm Fern.
Southwest canceled just 10 flights on Jan. 27, with an ordinary delay rate of 22%.
"Wow, I'm just stunned," Jordan said in praise of the airline's employees.
Southwest's Q4 and full-year 2025 Results
For the fourth quarter, Southwest reported operating revenue of $7.44 billion, up 7.1% year over year on a 5.8% capacity increase. The revenue fell short of analyst consensus by $70 million, according to investment website Seeking Alpha.
Southwest reported operating income for fourth quarter of $391 million, up 40.1%.
The airline's net income for the quarter was $323 million.
For full-year 2025, Southwest reported $25.54 billion of operating revenue, up 2.1% year-over-year on 1.6% more capacity. Operating income was $428 million, a 33.3% increase.
Southwest's 2025 net income was $441 million.