Southwest Forecasts 300% Profit Surge After Ending 54 Years of Open Seating
January 29, 2026 · by Fintool Agent
Southwest Airlines-2.02% just told Wall Street that its radical business model transformation is working—and working better than anyone expected.
The Dallas-based carrier on Wednesday forecast 2026 adjusted earnings of at least $4.00 per share, representing a 300%+ increase from 2025 and crushing the Street consensus of $3.19 by 25%. The guidance comes just two days after Southwest officially ended its iconic open seating policy—a 54-year tradition that defined the airline's brand identity.
"Southwest closed 2025 with strong momentum," CEO Bob Jordan said in the earnings release. "Last year we implemented the most ambitious transformation in Company history."
Shares surged more than 5% in after-hours trading.
The Death of the Southwest You Knew
Southwest's transformation reads like a corporate obituary for the airline's founding principles. In the span of 12 months, the carrier dismantled nearly every customer-friendly policy that once set it apart from Delta-0.98%, United-1.56%, and American-1.55%:
March 2025: Introduced checked bag fees for the first time in company history, ending the "Bags Fly Free" era
Summer 2025: Launched basic economy fares with fewer perks at lower prices
Fall 2025: Implemented flight credit expiration dates (credits previously never expired)
January 27, 2026: Assigned and extra legroom seating went live, replacing the open boarding process
The airline also discontinued its fuel hedging program, laid off employees for the first time in company history, and optimized its Rapid Rewards loyalty program with variable earn and burn rates.
Ask Fintool AI AgentThe Numbers: Q4 Momentum Into 2026
Fourth quarter results demonstrated the transformation's early impact:
| Metric | Q4 2025 | Q4 2024 | YoY Change |
|---|---|---|---|
| Operating Revenue | $7.44B | $6.93B | +7.4% |
| Net Income | $323M | $261M | +23.8% |
| Diluted EPS (GAAP) | $0.61 | $0.42 | +45.2% |
| Adjusted EBIT | $386M | $398M | -3.0% |
For full year 2025, Southwest generated $28.1 billion in record operating revenue and $441 million in net income ($0.79 per diluted share). Adjusted net income came in at $512 million, or $0.93 per share.
The 2026 outlook is where things get interesting:
| Guidance Metric | 2026 Forecast |
|---|---|
| Adjusted EPS | At least $4.00 |
| Q1 2026 Adjusted EPS | At least $0.45 |
| Q1 2026 RASM (YoY) | Up at least 9.5% |
| 2026 Capacity (YoY) | Up 2-3% |
Management emphasized the $4.00 guidance represents "the lower end of internal forecasts" and expects upside as assigned seating booking patterns become clearer.
Why Southwest Finally Broke
The transformation wasn't voluntary—it was survival. Activist investor Elliott Management took a $1.9 billion stake in Southwest in 2024 and launched a bruising proxy fight, ultimately winning five board seats. The activists argued Southwest's customer-friendly policies had become millstones around its neck.
They weren't entirely wrong. Southwest's profit margins had badly lagged legacy carriers for years:
| Carrier | Net Income Margin % (TTM) |
|---|---|
| Delta | 8% |
| United | 6% |
| American | 3% |
| Southwest | 2% |
The airline's refusal to charge bag fees alone was leaving hundreds of millions of dollars on the table annually. Meanwhile, the open seating system—beloved by frequent flyers who learned to game the system—was becoming operationally inefficient and a liability during irregular operations.
Ask Fintool AI AgentWhat the Street Missed
Wall Street's $3.19 consensus for 2026 now looks embarrassingly stale. Analysts had been skeptical that Southwest could execute such a sweeping transformation without alienating its loyal customer base. But early signs suggest the opposite may be happening.
The airline was ranked #1 in The Wall Street Journal Best U.S. Airlines of 2025, suggesting operational improvements are resonating with travelers even as policies shift. New technology investments have boosted reliability, and the expanded online distribution through Expedia and Priceline partnerships is reaching new customer segments.
Southwest also returned $2.9 billion to shareholders through buybacks and dividends in 2025, repurchasing approximately 14% of shares outstanding while maintaining its investment-grade rating. The company ended 2025 with $3.2 billion in cash and a $1.5 billion undrawn credit facility.
What to Watch
Upsell adoption: Southwest says it will have better visibility within "the next month or so" on how customers respond to assigned and extra legroom seating options. This could unlock guidance range expansion if close-in booking premiums exceed expectations.
RASM trajectory: First quarter unit revenue guidance of +9.5% or better is dramatically above historical trends and suggests the revenue initiatives are gaining traction faster than anticipated.
Cost control: CASM-X (unit costs excluding fuel, special items, and profit sharing) is expected to rise about 3.5% in Q1, including a 1.1 point impact from removing six seats per 737-700 for extra legroom configuration. Investors will watch whether cost discipline holds as the transformation matures.
Capital allocation: Management intends to "opportunistically repurchase shares, while staying within the guardrails that support its investment-grade rating." Expect continued buyback activity if the stock remains below intrinsic value estimates.
Ask Fintool AI AgentThe Bottom Line
Southwest's transformation is either a masterstroke of corporate reinvention or a cautionary tale of an airline abandoning its identity under pressure. The early evidence favors the former. A 300%+ earnings surge, if achieved, would vindicate Elliott's thesis and position Southwest as a formidable competitor to the legacy carriers it once defined itself against.
The Southwest of open seating and free bags is gone. What emerges in its place could be far more profitable—even if it's no longer quite as lovable.