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SOUTHWEST AIRLINES CO (LUV)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 came in slightly better than feared on revenues and non-GAAP EPS: revenue was $6.43B (record Q1) vs S&P Global consensus $6.40B*, and non-GAAP diluted EPS was -$0.13 vs -$0.19 consensus*; record yields drove a 3.5% YoY RASM gain despite leisure softness .
  • Cost control materially outperformed revised guidance (CASM-X +4.6% YoY vs “~+6%” guide), and operations led the industry in on-time performance; management accelerated the 2025 cost-reduction plan to ~$370M and reaffirmed initiative-driven EBIT contribution targets ($1.8B in 2025; $4.3B in 2026) .
  • Outlook mixed: Q2 RASM guided flat to down 4% YoY and management suspended reiteration of full-year 2025/2026 EBIT guides given booking volatility; H2 capacity will be cut such that 2025 ASMs rise “~1%” (low end of prior +1% to +2%) .
  • Catalysts into 2H25/2026: launch of bag fees/basic fare on May 28, OTA expansion (Expedia), assigned/extra-legroom seating sales in Q3 for 2026 operations, and accelerated buyback ($1.5B remaining targeted by end of July) .

What Went Well and What Went Wrong

What Went Well

  • Record yields and record Q1 operating/passenger revenues; RASM +3.5% YoY on revenue management actions and capacity moderation. “We are very encouraged by the results from the initiatives we implemented in the first quarter… launch of Expedia… optimization of our loyalty program.” .
  • Cost execution beat: CASM-X +4.6% YoY vs revised ~+6% and far below original +7-9%; management increased 2025 cost reduction target to ~$370M and 2027 run-rate >$1.0B .
  • Operations and distribution: leading on-time performance; Expedia OTA is ahead of expectations and is adding new-to-Southwest customers; loyalty card spend hit a Q1 record .

What Went Wrong

  • Demand softened through the quarter, particularly domestic leisure; load factor fell 440 bps YoY to 73.9% as the company prioritized yield over volume .
  • Q2 RASM guide is flat to -4% YoY; management is not reiterating full-year 2025/2026 EBIT guides amid booking volatility .
  • Fuel was above prior guidance in Q1 ($2.49/gal economic) and unit costs still rose YoY; GAAP net loss was $149M (EPS -$0.26) despite improvements vs last year .

Financial Results

Headline P&L and Unit Metrics

MetricQ3 2024Q4 2024Q1 2025Q1 2025 Consensus
Revenue ($USD Billions)$6.87 $6.93 $6.43 $6.40*
Diluted EPS (GAAP)$0.11 $0.42 -$0.26 —
Diluted EPS (ex-specials)$0.15 $0.56 -$0.13 -$0.19*
RASM (cents)15.19 15.92 15.51 —
CASM-X (cents; excl fuel, specials, profit sharing)11.91 12.19 12.81 —
Operating Income (Loss) ($USD Millions)$38 $278 $(223) —

Values with * are from S&P Global consensus.
S&P Global disclosure: Values retrieved from S&P Global.

Notes: Q1 2025 revenues +1.6% YoY; RASM +3.5% YoY; record all-time yield performance . Non-GAAP EPS and EBITDA used to compare to “Primary EPS” and EBITDA consensus, respectively.

KPIs (Q1 2025 vs Q1 2024)

KPIQ1 2024Q1 2025
Load Factor78.3% 73.9%
Average Fare ($)$173.76 $193.75
Passenger Yield (¢/RPM)17.26 18.97
RASM (¢)14.98 15.51
CASM (¢)15.91 16.05
CASM-X (¢; excl fuel, specials, profit sharing)12.25 12.81
ASMs (millions)42,248 41,432
RPMs (millions)33,087 30,629
Fuel Price (economic, $/gal)$2.92 $2.49
Fuel Consumed (MM gal)524 500
Aircraft (end of period)819 800

Cash, Liquidity, Capital

  • Liquidity: $9.3B (includes $8.3B cash/short-term investments and $1.0B undrawn revolver); net cash position $1.6B; unencumbered assets ~$16.3B .
  • Capex: Q1 capex $501M; full-year 2025 capex expected $2.5–$3.0B (potentially lower with fleet transactions) .
  • Buyback/dividends: $857M returned in Q1 (dividends $107M, buyback $750M); $1.0B repurchased to-date against $2.5B authorization; plan to complete remaining $1.5B by end of July 2025 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Capacity (ASMs) YoYFY 2025Up 1% to 2% Up ~1% Lowered
RASM YoYQ2 2025—Flat to down 4% New
CASM-X YoYQ2 2025—Up 3.5% to 5.5% New
Fuel cost/gal (economic)Q2 2025—$2.20–$2.30 New
Scheduled debt repaymentsQ2 2025—~$2.6B (incl. $976M PSP prepayment) New
CapexFY 2025$2.5–$3.0B $2.5–$3.0B Maintained
Full-year EBIT guideFY 2025/2026Provided previouslyNot reiterating; reaffirming initiative EBIT contribution targets ($1.8B 2025; $4.3B 2026) Suspended/not reiterated
Fuel hedging policyOngoing hedging Discontinued adding new hedges (existing portfolio remains through 2027) Discontinued

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3’24 and Q4’24)Current Period (Q1’25)Trend
Revenue management and yieldsQ3: RASM +2.8% YoY; Q4: RASM ex-specials +8% YoY as revenue techniques matured Record all-time yields; RASM +3.5% YoY despite leisure softness Improving but facing macro headwinds
Distribution/OTA expansionPlan to evolve marketing/distribution; OTA progress highlighted Expedia launched; performance ahead of expectations, adding new customers Accelerating
Product evolutionRoadmap for assigned and premium seating; technology build and retrofits underway Sell in Q3’25 for Q1’26 ops; ELR seat layout refined to optimize revenue On track
Macro demand/mixQ4: demand strength, holiday close-in strong Leisure softened; corporate (ex-govt) stable; load factors pressured Mixed/softer leisure
Capacity discipline2025 plan +1–2% via redeyes/turn time Further H2 trims (~1.5 pts in Q3/Q4); 2025 ~+1% More cautious
Boeing/fleetPlanning 38 -8 deliveries in 2025; MAX 7 pending FAA Still assuming 38 -8; optimistic on Boeing execution; retire ~50 a/c in 2025 Stable
Cost plan2027 run-rate >$500M (prior); CASM-X up YoY CASM-X outperformed; 2025 cost target to ~$370M; 2027 run-rate >$1B Improving

Management Commentary

  • “We are evolving at Southwest Airlines, more than ever before… expected to improve our commercial offering and financial performance… we are reducing capacity in the second half of this year… we now expect our full year 2025 capacity to be up roughly one percent.” – Bob Jordan, CEO .
  • “CASM-X came in at 4.6%, beating our previously adjusted guidance of approximately 6%… we will pay down $2.6B of debt in Q2… intend to complete the remaining $1.5B [buyback] by end of July.” – Tom Doxey, CFO .
  • “Next month, we will begin offering a basic economy product… we’ll start charging checked bag fees… begin selling premium and assigned seating in the third quarter… we have seen no evidence of book-away.” – Andrew Watterson, COO .

Q&A Highlights

  • Customer response/book-away: No evidence of sustained book-away; surveys show engaged customers remain satisfied as they internalize policy nuances (bag fees/basic vs benefits) .
  • Liquidity framework: Targeting around $4B minimum cash with significant unencumbered assets; focus on ramping initiative-driven EBIT to expand optionality .
  • Load factor vs yields and capacity: Yield discipline preserved amid macro weakness; added earlier-curve discounting to rebuild LF; H2 capacity trims (~1.5 pts/quarter) plus connectivity/basic to lift off-peak LF .
  • OTA traction: Expedia bookings represent ~4–5% of booked customers in recent months, skewing to markets where Southwest is underweight; cost-effective channel adds new customers .
  • Premium seating configuration: ELR seats concentrated forward (fewer than initially sketched) to maximize revenue per square foot; retrofits begin imminently .

Estimates Context

  • Q1 2025 vs S&P Global Consensus: Revenue $6.43B vs $6.40B*; Primary EPS (non-GAAP) -$0.13 vs -$0.19*; EBITDA $235M vs $197M* — modest beats across revenue and earnings quality. S&P Global disclosure: Values retrieved from S&P Global.
  • Implications for estimates: Management guided Q2 RASM flat to -4% and lowered 2025 capacity growth to ~+1%, while suspending full-year EBIT guides; near-term revenue/EPS estimates likely bias lower for Q2, partly offset by buyback and cost saves ramping through 2H .

Actual vs Consensus Detail (Q1 2025)

MetricActualConsensus
Revenue ($USD Billions)$6.43 $6.40*
Primary EPS (non-GAAP)-$0.13 -$0.19*
EBITDA ($USD Millions)$235 [GetEstimates actual aligns to non-GAAP bridge; see press release EBITDA proxy]$197*

Values with * are from S&P Global consensus.
S&P Global disclosure: Values retrieved from S&P Global.

Key Takeaways for Investors

  • Execution improving: record yields, cost beat vs guidance, operational leadership, and tangible progress on distribution and product — but macro leisure softness and load factor pressure temper near-term revenue growth .
  • Mix shift in 2H: Introduction of basic fare and bag fees (from May 28) plus Q3 selling of assigned/ELR seats should progressively lift monetization; management expects revenue contribution to ramp in H2 and 2026 .
  • Capacity discipline: Additional H2 trims (now FY25 ~+1% ASMs) target margin accretion; paired with cost plan acceleration to ~$370M in 2025 and >$1B run-rate by 2027 .
  • Capital return and balance sheet: ~$2.6B debt paydown in Q2 and a targeted $1.5B buyback completion by end of July underscore confidence; liquidity and unencumbered assets remain robust .
  • Estimate trajectory: Q2 RASM guide (flat to -4%) and suspended EBIT guide likely pressure near-term consensus, but self-help levers (product, pricing architecture, network connectivity, cost plan, buyback) support medium-term margin recovery .
  • Watch list: Demand elasticity to policy changes (bag fees/basic), cadence of seat retrofit/assigned seating sell-through, OTA economics/flow-through, and Boeing -8 delivery pace .

Appendix: Additional Relevant Press Releases (Q1 2025)

  • Southwest outlines revenue growth changes: introduction of basic fare from May 28; bag fee policy for non-qualifying customers; loyalty earn/burn optimization; Expedia distribution; flight credit expirations reintroduced — core to 2025/26 monetization plan .
  • Reimagined fare products announced (post-quarter, April 28): Choice/Choice Preferred/Choice Extra bundles, assigned and ELR seat sales in Q3 for 2026 ops; expanded credit card and tier benefits .

Citations:

  • Q1 2025 8-K/press release and exhibits .
  • Q1 2025 call transcript .
  • Prior quarters for trend: Q3 2024 and Q4 2024 8-Ks .

S&P Global disclosure: Where marked with an asterisk (*), values are retrieved from S&P Global.