Southwest Airlines (LUV) AI Stock Analysis

• Market Cap: $17.01B
• Dividend Yield: 2.41%
• Average Volume (3M): 14.99M
• Price to Earnings (P/E): 35.4
• Beta (1Y): 1.06
• Revenue Growth: 3.26%
• EPS Growth: 27.77%
• Country: US
• Employees: 71,506
• Sector: Industrials
• Sector Strength: 78
• Industry: Airlines, Airports & Air Services
• EPS (TTM): 0.84
• Shares Outstanding: 569,865,800
• 10 Day Avg. Volume: 15,588,387
• 30 Day Avg. Volume: 14,986,605
• PEG Ratio: 1.28
• Price to Book (P/B): N/A
• Price to Sales (P/S): 0.00
• Price to Cash Flow (P/CF): 0.00
• P/FCF Ratio: 0.00
• Enterprise Value/Market Cap: 1.14
• Enterprise Value/Revenue: N/A
• Enterprise Value/Gross Profit: 4.34
• Enterprise Value/Ebitda: N/A
• 1Y Price Target: $29.75
• Price Target Upside: -1.10% Downside
• Rating Consensus: Hold
• Number of Analyst Covering: 17

Southwest Airlines shows strong recovery in financial performance with revenue growth and leverage improvement, yet faces challenges with cash flow and profitability. The technical analysis suggests bearish momentum, while valuation raises concerns over potential overvaluation. Earnings call and corporate events indicate proactive management amidst demand weakness and economic uncertainty.

Positive Factors

Cash Flow

Operating cash flow was significantly higher than capital expenditures, leading to substantial free cash flow.

Financial Performance

Southwest reported a narrower-than-anticipated loss reflecting record first-quarter revenue and accelerated cost-cutting.

Revenue Growth

Southwest plans to increase capacity by 1%-2% and fully utilize its existing fleet through 2027 to offset rising costs and maximize revenue growth.

Negative Factors

Competition Risk

Southwest's push to build premium revenue risks colliding with network airline competition and discount airlines, creating competition risk for core customers.

Consumer Demand Concerns

Demand for US economy class service looks a little soft, which may impact discretionary spending.

Future Performance Uncertainty

The company is pulling the full year guidance, which suggests uncertainty in future performance.

Southwest Airlines Business Overview & Revenue Model

Company Description

Southwest Airlines Co. operates as a passenger airline company that provide scheduled air transportation services in the United States and near-international markets. As of December 31, 2021, the company operated a total fleet of 728 Boeing 737 aircrafts; and served 121 destinations in 42 states, the District of Columbia, and the Commonwealth of Puerto Rico, as well as 10 near-international countries, including Mexico, Jamaica, the Bahamas, Aruba, the Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos. It also provides inflight entertainment and connectivity services on Wi-Fi enabled aircrafts; and Rapid Rewards loyalty program that enables program members to earn points for dollars spent on Southwest base fares. In addition, the company offers a suite of digital platforms to support customers' travel needs, including websites and apps; and SWABIZ, an online booking tool. Further, it provides ancillary services, such as Southwest's EarlyBird Check-In, upgraded boarding, and transportation of pets and unaccompanied minors. The company was incorporated in 1967 and is headquartered in Dallas, Texas.

How the Company Makes Money

Southwest Airlines makes money primarily through the sale of passenger tickets for air travel, which constitutes the majority of its revenue. The company employs a low-cost carrier model, focusing on high-frequency, short-haul routes to maximize aircraft utilization and minimize costs. Ancillary services such as fees for additional services, including early check-in, upgraded boarding, and other in-flight offerings, also contribute to its revenue streams. Southwest's rapid turnaround times and focus on operational efficiency help keep costs low and maintain profitability. The company also benefits from strategic partnerships with other travel-related businesses, loyalty programs, and co-branded credit cards, which provide additional revenue through commissions and fees.

Southwest Airlines Financial Statement Overview

Summary

Southwest Airlines shows a strong recovery with increasing revenue and improved leverage. However, challenges in free cash flow and relatively low ROE indicate areas for improvement.

Income Statement

Southwest Airlines demonstrates a strong recovery trajectory with a consistent increase in total revenue over the years, reaching $27.58 billion in the TTM. The gross profit margin improved significantly from negative in 2020 to approximately 26.3% in the TTM, indicating enhanced operational efficiency. The net profit margin, while modest at 1.98% in the TTM, reflects a positive trend from previous losses. However, the EBIT and EBITDA margins remain relatively low, signaling room for improvement in core earnings. Overall, the income statement reflects a solid recovery with potential for stronger profitability.

Balance Sheet

The balance sheet reveals a stable financial position with a notable cash reserve of $8.25 billion in the TTM. The debt-to-equity ratio decreased to approximately 0.42, indicating manageable leverage and improved financial stability. The equity ratio stands at 43.6%, suggesting a healthy proportion of equity financing. However, the return on equity (ROE) at 5.83% in the TTM is relatively low, highlighting the need for enhanced profitability to maximize shareholder returns. The balance sheet reflects a stable financial structure with a conservative approach to debt management.

Cash Flow

The cash flow statement shows a mixed performance with an operating cash flow of $1.43 billion in the TTM, suggesting operational stability. However, the free cash flow remains negative at -$563 million due to higher capital expenditures, indicating potential challenges in generating surplus cash for investments. The operating cash flow to net income ratio is strong, reflecting efficient cash generation relative to profits. Despite improvements, the cash flow position requires attention to enhance liquidity and support growth initiatives.

Breakdown
Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Income Statement		Total Revenue
27.48B	26.09B	23.81B	15.79B	9.05B
	Gross Profit
4.46B	4.22B	4.75B	4.12B	-1.89B
	EBIT
321.00M	224.00M	1.02B	1.72B	-3.82B
	EBITDA
2.47B	2.39B	2.38B	3.03B	-2.70B
	Net Income Common Stockholders
465.00M	465.00M	539.00M	977.00M	-3.07B
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
8.72B	11.47B	12.29B	15.50B	13.33B
	Total Assets
33.75B	36.49B	35.37B	36.32B	34.59B
	Total Debt
8.06B	9.23B	9.43B	12.28B	12.20B
	Net Debt
549.00M	-59.00M	-61.00M	-199.00M	1.14B
	Total Liabilities
23.40B	25.97B	24.68B	25.91B	25.71B
	Stockholders Equity
10.35B	10.52B	10.69B	10.41B	8.88B
Cash Flow		Free Cash Flow
-1.62B	-389.00M	-156.00M	1.81B	-1.64B
	Operating Cash Flow
462.00M	3.16B	3.79B	2.32B	-1.13B
	Investing Cash Flow
-261.00M	-2.93B	-3.75B	-1.26B	-16.00M
	Financing Cash Flow
-1.98B	-436.00M	-3.03B	359.00M	9.66B

Southwest Airlines Technical Analysis

• Technical Analysis Sentiment: Positive
• Last Price: 30.08
• 50DMA: Positive
• 100DMA: Negative
• 200DMA: Positive
• MACD: Negative
• RSI: Neutral
• STOCH: Negative

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For LUV, the sentiment is Positive. The current price of 30.08 is above the 20-day moving average (MA) of 26.49, above the 50-day MA of 29.42, and above the 200-day MA of 29.88, indicating a bullish trend. The MACD of -0.18 indicates Negative momentum. The RSI at 60.27 is Neutral, neither overbought nor oversold. The STOCH value of 93.45 is Negative, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for LUV.

Southwest Airlines Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
UAL	76 Outperform	$24.19B	6.75	33.57%	―	5.31%	35.95%
DAL	75 Outperform	$28.86B	7.84	27.52%	1.24%	4.91%	-27.21%
RYAAY	74 Outperform	$26.45B	15.20	21.21%	1.68%	5.39%	-15.92%
Sector *	64 Neutral	$4.27B	11.81	5.31%	249.66%	4.08%	-8.61%
LUV	59 Neutral	$17.01B	35.45	5.63%	2.41%	3.26%	27.77%
AAL	58 Neutral	$6.94B	12.15	-21.27%	―	1.92%	36.07%
JBLU	43 Neutral	$1.69B	―	-11.30%	―	-3.02%	66.90%

Southwest Airlines Corporate Events

Southwest Airlines Reports Q1 2025 Net Loss

On April 23, 2025, Southwest Airlines reported a net loss of $149 million for the first quarter of 2025, despite achieving record operating revenues of $6.4 billion. The company is implementing several initiatives to improve financial performance, including cost reduction plans, new distribution channels, and loyalty program optimization. Southwest Airlines is also preparing to introduce basic economy and bag fees, and plans to sell assigned and extra legroom seats starting in the third quarter of 2025. The company is adjusting its capacity to align with a lower demand environment and remains committed to maintaining a strong balance sheet.

Spark’s Take on LUV Stock

According to Spark, TipRanks’ AI Analyst, LUV is a Neutral.

Southwest Airlines’ stock score reflects solid financial performance with revenue growth and improved leverage but is tempered by cash flow challenges. Technical analysis indicates bearish momentum, while valuation suggests potential overvaluation. Positive earnings call sentiment and strategic corporate events contribute positively, but the stock faces near-term pressures from operational challenges and cost inflation.

To see Spark’s full report on LUV stock, click here.

Southwest Airlines Appoints New Principal Accounting Officer

On March 28, 2025, Southwest Airlines’ Board of Directors appointed J. Ryan Martinez as the new principal accounting officer, effective April 1, 2025, succeeding Tammy Romo. Martinez, who has held various roles within the company, including Senior Vice President Finance & Controller, brings extensive experience in investor relations to his new position.

Southwest Airlines Revises Q1 2025 Financial Guidance

On March 11, 2025, Southwest Airlines updated its financial guidance for the first quarter of 2025 at the J.P. Morgan Industrials Conference. The company now expects a smaller increase in operating revenue per available seat mile (RASM) and a slight decrease in capacity compared to previous estimates. This revision is attributed to factors such as higher-than-expected completion rates, reduced government travel, and impacts from California wildfires. Additionally, Southwest anticipates a lower increase in operating expenses per available seat mile (CASM-X) due to increased capacity and lower-than-expected costs in salaries, maintenance, and other areas. The company continues to focus on driving efficiencies to counter inflationary pressures.

Southwest Airlines Amends Agreement with Elliott Investment

On February 19, 2025, Southwest Airlines amended its Cooperation Agreement with Elliott Investment Management, increasing Elliott’s potential economic exposure in the airline’s stock from 14.9% to 19.9%. The agreement also maintains restrictions on Elliott’s beneficial ownership until April 2026. Additionally, Ryan Green, the company’s Executive Vice President & Chief Transformation Officer, announced his resignation effective April 1, 2025, which marks a significant leadership change for Southwest Airlines.

Southwest Airlines Announces Major Workforce Reduction

On February 17, 2025, Southwest Airlines Co. announced a significant reduction in its corporate workforce, eliminating approximately 1,750 roles, or 15% of its corporate positions, as part of a transformational plan to enhance efficiency and agility. This unprecedented decision, aimed at reducing operating costs, is expected to generate substantial savings for the company, despite an initial one-time charge for severance and benefits, with expected savings of $210 million in 2025 and $300 million in 2026.

Southwest Airlines Appoints Tom Doxey as CFO

On February 10, 2025, Southwest Airlines announced the appointment of Tom Doxey as Executive Vice President & Chief Financial Officer, effective March 10, 2025. Doxey, with a robust background in aviation finance and strategic transformation, previously led Breeze Airways to profitability and held significant roles at United Airlines. His expertise is anticipated to strengthen Southwest’s financial and operational leadership.

Southwest Airlines Announces Board Member Departures

On February 4, 2025, Southwest Airlines announced that Eduardo F. Conrado and Elaine Mendoza will not seek re-election to the Board of Directors and will retire following the 2025 Annual Meeting. Their departure is aligned with a Cooperation Agreement involving Elliott Investment Management and related entities, and is not due to any disagreements with the company’s operations or policies.