Southwest forecasts 2026 profit above estimates as overhaul gains traction

By Rajesh Kumar Singh

CHICAGO, Jan 28 (Reuters) – Southwest Airlines on Wednesday forecast a stronger-than-expected profit in 2026 and signaled a solid start to the year despite U.S. winter storm disruptions, saying an overhaul of its business model was beginning to gain traction.

The airline, which has pivoted away from its traditional practices of unassigned seating and free checked bags, said it was benefiting from customer-focused offerings, more reliable operations and strong early results from changes it rolled out last year.

Southwest expects an adjusted profit of at least $4.00 a share, compared with analysts’ average expectations of a profit of $3.19, according to data compiled by LSEG.

For the first quarter, it expects an adjusted profit of at least 45 cents a share, compared with 33 cents a share expected by analysts.

The company’s shares gained more than 5% in after-hours trading.

Southwest said assigned seats and extra-legroom options, which started on flights this week, could further boost earnings depending on the willingness of customers to pay for those upgrades.

The carrier said it should have a better sense within the next month of the strength of that demand and it planned to give more detailed profit guidance for 2026 with its next quarterly update in April, or possibly sooner.

Southwest said it expected unit revenue – a key metric that shows how much revenue it brings in for the amount of flying it does – to be up at least 9.5% year-on-year in the current quarter, compared with analysts’ expectation of a 6.53% increase.

TRANSFORMATION PIVOT

The Dallas-based carrier stood apart for years from its domestic rivals Delta Air Lines, United Airlines and American Airlines by selling a simpler product, leaving it with fewer levers to pull when costs rose and demand shifted.

With profits under pressure and investors demanding change, it has pivoted away from its traditional model. Its switch to assigned seats is a shift away from its long-time open-seating system and makes the onboard experience more like what travelers see on the big legacy airlines.

Last year, it began charging many customers for checked bags. At the same time, it introduced a more restrictive entry-level “Basic” fare and tightened rules around travel credits — the kind of add-ons and fine print that Southwest long avoided, but that rivals have used for years to boost revenue. It is also trying to cut costs and improve day-to-day operations.

CEO Bob Jordan called the shift “the most ambitious transformation” in Southwest’s history and said early execution, from cost cuts to improved reliability, has created a foundation for “significant earnings growth” this year.

Over the past year, Southwest’s stock has outperformed the broader market and much of the airline sector as investors bet the makeover will pay off.

Its adjusted fourth-quarter profit was 58 cents a share, in line with expectations.

The company will discuss its financial results on a call with analysts and investors on Thursday morning.

(Reporting by Rajesh Kumar Singh; Editing by Chris Reese and Jamie Freed)