Southwest Airlines shares surged more than 12 percent on Thursday after the carrier forecast 2026 profits well above analyst expectations, signaling that its dramatic business transformation is already paying dividends. The Dallas-based airline expects to earn at minimum $4 per share this year, far exceeding the $3.19 that Wall Street analysts had anticipated, marking a potential tripling of earnings compared to 2025.
The bullish outlook comes just days after Southwest officially ended its 53-year tradition of open seating on January 27, transitioning to assigned seats for the first time in the carrier's history. The move aligns Southwest with competitors American, Delta, and United Airlines, which have long offered assigned seating and generated significant revenue from premium seat upgrades and baggage fees.
Chief Executive Officer Bob Jordan declared that 2025 saw the implementation of the most ambitious transformation in company history. The changes include the introduction of baggage fees, basic economy fares, assigned and extra legroom seating, loyalty program optimization, expanded online distribution partnerships, and free Wi-Fi for Rapid Rewards members. Jordan noted that 2026 is off to a strong start despite the impact of Winter Storm Fern, which is expected to cost the airline between $30 million and $40 million.
Fourth-quarter results reinforced investor confidence, with net income rising nearly 24 percent from the prior year to $323 million. Revenue climbed 7.4 percent to $7.44 billion during the period. For the full year 2025, Southwest posted adjusted net income of $512 million, or 93 cents per diluted share. The company expects first-quarter 2026 adjusted earnings of at least 45 cents per share, well above the 33 cents analysts had projected.
The new seating structure divides Southwest cabins into three categories: extra legroom seats with premium pricing, preferred seats in mid-tier locations, and standard economy seats. The airline replaced its iconic A, B, and C boarding groups with a new system using Groups 1 through 8, determined by seat type, fare class, and loyalty status. Basic fare passengers now receive randomly assigned seats at check-in rather than choosing their own upon boarding.
Industry analysts noted that activist investor Elliott Investment Management had pushed for these changes in 2024, arguing that Southwest had long avoided airline industry standards including baggage fees, premium products, and seat assignments. The stock has risen more than 26 percent over the past 12 months, outperforming every other major airline carrier. Southwest also forecast capacity growth of 2 to 3 percent compared to 2025, potentially doubling last year's expansion rate.
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