Executive Summary

Q2 2025 EPS and revenue fell modestly short of S&P Global consensus: non‑GAAP diluted EPS $0.43 vs $0.51 est. and revenue $7.24B vs $7.29B est.; GAAP EPS was $0.39 . S&P Global values marked with *; see disclaimer.
Macros drove a major guide reset: 2025 EBIT now $600–$800M (from prior $1.7B), with the cut driven by ~$0.8–$1.0B macro revenue headwind and ~$0.1B higher fuel, partly offset by $0.6–$0.8B from initiatives .
Commercial transformation is taking hold: bag fees exceeded expectations with 2025 EBIT >$350M and a ~$1B run‑rate; Expedia distribution now ~5% of passengers with >50% net new to Southwest; basic economy conversion issue was fixed within ~2 weeks .
Outlook: Q3 RASM guided to down 2% to up 2% YoY on flat capacity; CASM‑X up 3.5%–5.5%; fuel $2.40–$2.50/gal; company expects sequential demand improvement and accelerating initiative contribution into Q4 .
Capital deployment: completed $2.5B buyback authorization and authorized a new $2.0B program; ended Q2 with $3.8B cash/short‑term investments and a fully available $1.0B revolver (subsequently upsized to $1.5B), leverage 2.1x adjusted debt/EBITDAR .

What Went Well and What Went Wrong

What Went Well

Commercial monetization traction: “We began charging checked bag fees… bag fee revenue exceeding expectations,” with 2025 EBIT >$350M and ~$1B annual run‑rate if in place for a full year .
Distribution and loyalty momentum: Expedia bookings at ~5% of passenger volume, with more than half net new to Southwest; Chase co‑brand enhancements align with new seating products and are expected to drive acquisitions and spend .
Operational execution and efficiency: Exceeded 2019 aircraft utilization with turn/redeye initiatives; ~220+ aircraft retrofitted for extra legroom; no operational disruption from bag fees rollout; Q3 unit cost guide consistent with plan .

What Went Wrong

Macro demand and unit revenue: RASM down 3.1% YoY on capacity +1.6%; temporary basic economy conversion friction further reduced Q2 RASM by ~½ point (and ~1 point expected in Q3) .
Profitability compressed: Operating income fell to $225M from $398M (-43.5% YoY); GAAP diluted EPS $0.39 vs $0.58 prior year; CASM‑X up 4.7% YoY (including ~½ point non‑cash deferred comp headwind) .
Guide reset: 2025 EBIT cut to $600–$800M from $1.7B on industry macro softness and fuel; implies heavier reliance on Q4 due to initiative ramp and sequential demand recovery .

Financial Results

Headline P&L vs prior year and prior quarter

Metric	Q2 2024	Q1 2025	Q2 2025
Total Operating Revenues ($B)	$7.35	$6.43	$7.24
Operating Income ($M)	$398	$(223)	$225
Net Income ($M, GAAP)	$367	$(149)	$213
Diluted EPS (GAAP)	$0.58	$(0.26)	$0.39
Diluted EPS (ex‑specials)	$0.58	$(0.13)	$0.43

Revenue composition (YoY)

Revenue ($M)	Q2 2024	Q2 2025	YoY
Passenger	$6,712	$6,627	(1.3%)
Freight	$45	$44	(2.2%)
Other	$597	$573	(4.0%)
Total	$7,354	$7,244	(1.5%)

KPIs and unit economics

KPI	Q2 2024	Q1 2025	Q2 2025
RASM (¢)	15.90	15.51	15.41
PRASM (¢)	14.51	14.02	14.10
CASM (¢)	15.04	16.05	14.94
CASM‑X (¢, ex fuel/special/profit sharing)	11.50	12.81	12.04
Load Factor (%)	82.6	73.9	78.5
ASMs (B)	46.25	41.43	46.996
RPMs (B)	38.22	30.63	36.885
Avg Fare ($)	178.94	193.75	186.65
Fuel cost/gal ($, economic)	2.76	2.49	2.32

Actual vs S&P Global consensus (Q2 2025)

Metric	Actual	S&P Global Consensus	Beat/Miss
Revenue ($B)	$7.244	$7.289*	Miss (~$0.045B)
Diluted EPS (ex‑specials)	$0.43	$0.513*	Miss (~$0.08)
EBITDA ($B)	~$0.625 [GetEstimates reports actual 0.625]	~$0.724*	Miss (~$0.099B)

Values marked with * are from S&P Global. Values retrieved from S&P Global.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
EBIT (ex‑specials)	FY 2025	~$1.7B (prior internal guide referenced)	$600–$800M	Lowered; macro (~~$0.8–$1.0B) and fuel (~~$0.1B) headwinds partially offset by initiatives (+$0.6–$0.8B)
RASM YoY	Q3 2025	—	Down 2% to up 2%	New
ASMs YoY	Q3 2025	—	~Flat	New
CASM‑X YoY	Q3 2025	—	Up 3.5%–5.5%	New
Fuel cost/gal	Q3 2025	—	$2.40–$2.50	New
Capacity	FY 2025	Up ~1% YoY (reaffirmed)	Up ~1% YoY	Maintained
Capex	FY 2025	$2.5–$3.0B	$2.5–$3.0B	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2024)	Previous Mentions (Q1 2025)	Current Period (Q2 2025)	Trend
Bag fees & basic economy	Set up for monetization; plan outlined	Launch planned 5/28; minimal book‑away expected	Bag fees outperform; basic economy conversion friction fixed; >$350M 2025 EBIT from bags	Positive ramp; early execution issues resolved
Assigned/premium seating	Mid‑year retrofits; 2026 ops start	On track; selling in H2’25; ops in Q1’26	Selling begins Jul 29 for Jan 27, 2026 flights	On schedule; catalyst approaching
Distribution (OTAs)	RM advancement and marketing evolution	Expedia launch exceeding expectations	Expedia ~5% of pax, >50% net new	Expanding reach/new customers
Loyalty/Chase	Amended deal supports targets	Record Q1 co‑brand spend; new benefits tied to seating	New card benefits, seating/bag perks; sign‑ups rising	Strengthening ecosystem
Cost program	$500M plan; accelerate savings	Raised 2025 cost‑save target to ~$370M	On track for $370M; CASM‑X up 3.5%–5.5% in Q3	Executing per plan
Macro demand	Constructive late‑2024 backdrop	Weakening leisure; capacity moderated	Stabilized in Q2 with improvement into Jul; Q3 flatish RASM guide	Bottoming, early recovery
Fuel/hedging	Hedged; cost ~$2.50–$2.60/gal 1Q25	Discontinuing hedging; unwind opportunistically	Hedging program terminated; small $40M proceeds; future premium amortization	Transition complete
Fleet & monetization	38 delivery plan for 2025; sale‑leaseback executed	Retire ~51 aircraft in 2025; monetize fleet when deliveries improve	47 -8 deliveries planned; ~55 retirements; selling five -800s in 2H’25	More deliveries; monetization advancing

Management Commentary

“We began charging checked bag fees… and implemented our basic economy product… the revenue contribution from bag fees has exceeded our expectations so far.” – Bob Jordan, CEO .
“We currently estimate that checked bag fees will result in more than $350 million of EBIT for the full year 2025… run rate of approximately $1 billion of EBIT had it been in place for the full year.” – Tom Doxey, CFO .
“Expedia… now represents roughly 5% of our passenger volume, and more than half of that 5% being customers that are net new to Southwest.” – Tom Doxey, CFO .
“We have provided an updated full‑year EBIT guide of $600 million–$800 million… with a nearly $1B drop from the precipitous decline in the macro environment.” – Bob Jordan, CEO .
“We quickly refined the booking flow [for basic economy]… bookings and conversion rates quickly returned to expected levels.” – Andrew Watterson, COO .

Q&A Highlights

Why the back‑half ramp? Management expects Q3 near breakeven and Q4 materially stronger driven by initiative ramp (bags, loyalty, flight credit expiration) and macro improvement; basic economy becomes a tailwind with assigned seats in 2026 .
Bag fees outperformance: Higher paid‑bag take rates vs plan, no detectable book‑away, minimal operational impact; gate checked bags modestly higher as expected .
Load factor recovery: Focus shifts to connectivity and pricing segmentation to fill off‑peak seats; intentional connecting opportunities up materially beginning in August .
Fleet actions: 2025 deliveries raised to 47 -8s; ~55 retirements; selling five -800s in 2H’25; aircraft sales generate cash with book gains excluded from guidance .
Liquidity/Leverage framework: Target ~$4.5B liquidity (cash + revolver) and 1.0x–2.5x adjusted debt/EBITDAR; ended Q2 at 2.1x .

Estimates Context

Q2 2025 results modestly missed S&P Global consensus on revenue ($7.24B vs $7.29B*) and non‑GAAP diluted EPS ($0.43 vs $0.51*); EBITDA ~$0.63B vs ~$0.72B* as unit revenues lagged while costs rose .
FY 2025 consensus EPS and revenue trajectories remain modest with initiative ramp potentially offsetting macro softness; company’s FY 2025 EBIT guidance ($600–$800M) implies greater back‑half weighting than typical .
Values retrieved from S&P Global.

Key Takeaways for Investors

EPS/revenue shortfalls were driven by macro and a temporary basic economy conversion issue, now fixed; initiatives are tracking ahead (bags) and should accelerate into Q4 and 2026—key to the bull case .
The guide reset de‑risks FY 2025; with Q3 RASM down 2% to up 2% and initiative ramp, setup favors a Q4 skew—watch monthly RASM and bag yield KPIs as near‑term catalysts .
Distribution and loyalty are expanding TAM (Expedia net‑new customers; Chase enhancements) and should support buy‑up into new fare/seating tiers as assigned seating goes on sale (July 29) for January 2026 flights .
Cost program remains intact; CASM‑X pressured near‑term (retrofit/overhaul timing) but targeted to exit 2025 low‑single‑digit YoY—evidence to monitor in Q3/Q4 prints .
Fleet monetization and improving Boeing deliveries create optionality for cash, capex and mix, while capital returns continue ($2.0B new buyback) supported by stronger 2026 EBIT potential .
Risks: macro recovery pace, execution on seating rollout and buy‑up, and any slippage in unit revenue improvement; fuel volatility is now fully unhedged .
Near‑term trading: sentiment hinges on monthly RASM sequential improvement and visible monetization of bags/loyalty/connectivity; medium‑term thesis depends on 2026 EBIT expansion with assigned/premium seating and continued cost/efficiency gains .

Appendix: Additional Data and Guidance Details

Q3 2025 guidance: RASM down 2% to up 2%; ASMs ~flat; fuel $2.40–$2.50/gal; CASM‑X up 3.5%–5.5%; interest ~$35M; scheduled debt repayments ~$6M .
Liquidity/Leverage: Q2 cash & equivalents + ST investments $3.8B; fully available $1.0B revolver; liquidity target ~$4.5B (revolver upsized to $1.5B post‑quarter); adjusted debt/EBITDAR 2.1x .
Operational statistics: Q2 load factor 78.5% (‑410 bps YoY), fuel efficiency +2.9% YoY; fuel hedging program discontinued .

View source details in earnings materials and transcripts: earnings release/8‑K, call transcripts, and related press releases .

Values retrieved from S&P Global.

SOUTHWEST AIRLINES CO (LUV)·Q2 2025 Earnings Summary