Last Update 10 Dec 25

Fair value Increased 2.17%

LUV: Industry Tailwinds And Partnerships Will Shape Future Earnings Profile

Southwest Airlines' analyst price target has ticked higher by about $1 to the mid $30s, as analysts cite a lower perceived risk profile, slightly refined long term growth and profitability assumptions, and supportive industry dynamics highlighted in recent airline sector previews.

Analyst Commentary

Analysts are broadly constructive on Southwest's risk reward profile, but remain divided on how quickly the carrier can translate industry tailwinds into outsized earnings growth relative to peers.

Bullish Takeaways

Bullish analysts view the recent price target increases into the low to mid $30s as reflecting improved long term earnings visibility and a lower perceived execution risk.
Several notes point to technology driven merchandising and product de commoditization across the industry as supportive of Southwest's ability to stabilize unit revenues and protect margins over time.
New out year estimates through 2027, including from JPMorgan, assume that industry profits will remain concentrated among better capitalized carriers, which supports a premium valuation for operators seen as structurally profitable.
Raising of intermediate term price targets is framed as a recognition that Southwest can participate in the next leg of industry revenue acceleration, even if not the primary share gainer.

Bearish Takeaways

Bearish analysts argue that, despite the higher targets, the balance of Buy ratings and upside cases still skews toward other network carriers, suggesting Southwest may lag on margin expansion.
Several previews emphasize that premium, brand loyal airlines with more diversified cabin offerings could capture a disproportionate share of high margin demand, potentially constraining Southwest's relative growth.
There is caution that the path back to peak profitability for more challenged carriers will remain difficult, and Southwest is at risk of being viewed closer to that cohort if it cannot accelerate cost and revenue initiatives.
Modest target increases, particularly those accompanied by Hold or Neutral stances, underscore concern that valuation already reflects a meaningful portion of the near term recovery story.

What's in the News

Federal Aviation Administration flight restrictions tied to the recent government shutdown are being lifted, easing a 6% cut in air traffic and setting the stage for a gradual normalization of schedules across U.S. carriers including Southwest. (Wall Street Journal)
Persistent air traffic control staffing shortages have triggered thousands of flight delays and cancellations across major U.S. cities, pressuring operations and on time performance for airlines such as Southwest. (Reuters)
The FAA has been slowing flights for multiple days as the government shutdown persists, with tens of thousands of delays reported nationwide and Southwest among the carriers affected by air traffic controller absences. (Reuters)
Southwest announced a new partnership with Condor that will offer same ticket transatlantic connections via major U.S. gateways and expand access to its redesigned cabin and assigned seating beginning in 2026.
Southwest expanded its international and domestic long haul reach through new and planned partnerships with Philippine Airlines and Hahnair, broadening distribution via 100,000 travel agencies in 190 markets.

Valuation Changes

Fair value has risen slightly from approximately $34.23 to $34.97 per share, reflecting a modestly higher intrinsic value estimate.
The discount rate has fallen significantly from about 9.98% to 8.64%, indicating a lower perceived risk profile in the updated model.
Revenue growth has edged down marginally from roughly 6.56% to 6.54%, suggesting a nearly unchanged long-term top line outlook.
Profit margin has slipped slightly from about 5.62% to 5.61%, implying a largely stable, modestly profitable earnings profile.
The future P/E has decreased slightly from around 10.09x to 9.96x, pointing to a marginally lower valuation multiple applied to forward earnings.

Expansion through new distribution channels and differentiated pricing strategies is expected to drive revenue and improve net margins.
Operational efficiencies and cost-effective strategies are likely to enhance net margins and earnings, supported by loyalty program optimization.
Macroeconomic uncertainty and competitive pressures, combined with operational challenges and consumer acceptance issues, could significantly impact Southwest Airlines' revenue, costs, and market share.

Catalysts

About Southwest Airlines

Operates as a passenger airline company that provides scheduled air transportation services in the United States and near-international markets.What are the underlying business or industry changes driving this perspective?

Successful launch of the Expedia distribution channel and anticipated continuation of higher booking volumes from new customer bases could drive increased revenue and RASM as Southwest Airlines expands its customer reach and capitalizes on fresh demand channels.
Planned introduction of premium and assigned seating, along with basic economy offerings, can enhance revenue yield through differentiated pricing strategies catering to varied consumer preferences, thereby potentially boosting net margins and overall earnings.
Streamlined operations through a decrease in turn time at 19 major stations, alongside a leading industry on-time performance, suggests potential operational efficiency improvements. This should help optimize costs, leading to an improvement in net margins and earnings.
The airline's cost reduction plan, already showing positive results with better-than-guided CASM-X, indicates potential for continued cost efficiencies, maintaining a disciplined approach to expenses that could positively influence net margins and overall earnings.
Loyalty program optimization and enhanced partnership agreements, such as the one with Chase, offer robust avenues for incremental EBIT. With expected record spending on co-branded credit cards, these changes in the loyalty program are set to further bolster revenues.

Southwest Airlines Earnings and Revenue Growth

Southwest Airlines Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Southwest Airlines's revenue will grow by 5.9% annually over the next 3 years.
Analysts assume that profit margins will increase from 1.4% today to 5.9% in 3 years time.
Analysts expect earnings to reach $1.9 billion (and earnings per share of $4.26) by about September 2028, up from $392.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.2 billion in earnings, and the most bearish expecting $1.2 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.5x on those 2028 earnings, down from 41.5x today. This future PE is lower than the current PE for the US Airlines industry at 10.5x.
Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 10.42%, as per the Simply Wall St company report.

Southwest Airlines Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The macroeconomic uncertainty and softened booking trends, especially in leisure travel, pose risks that could impact Southwest Airlines' future revenue and earnings, as demand forecasts become difficult to predict.
Delays or reductions in the expected aircraft deliveries by Boeing may affect Southwest's capacity management and operational efficiency, impacting potential revenue and cost structures.
The cessation of Southwest's fuel hedging program, amidst volatile market prices, introduces risk that could affect operational costs and ultimately net margins and earnings.
Increased competition from other airlines offering expanding services at airports like O'Hare could pressure Southwest's market share and revenue potential, particularly in key competitive markets.
Uncertainty surrounding the impact and consumer acceptance of new initiatives, such as introducing bag fees and implementing a basic economy product, could affect customer loyalty and satisfaction, potentially impacting future revenues and margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $32.06 for Southwest Airlines based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $46.0, and the most bearish reporting a price target of just $19.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $32.6 billion, earnings will come to $1.9 billion, and it would be trading on a PE ratio of 9.5x, assuming you use a discount rate of 10.4%.
Given the current share price of $30.99, the analyst price target of $32.06 is 3.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Industry Shifts And Margin Recovery Will Support Performance Through 2026 And Beyond