Why Is Southwest (LUV) Up 5% Since Last Earnings Report?

A month has gone by since the last earnings report for Southwest Airlines (LUV). Shares have added about 5% in that time frame, outperforming the S&P 500.

But investors have to be wondering, will the recent positive trend continue leading up to its next earnings release, or is Southwest due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Southwest Airlines Q4 Earnings Surpass Estimates

Southwest Airlines reported mixed fourth-quarter 2025 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same.

Quarterly earnings of 58 cents per share beat the Zacks Consensus Estimate of 56 cents and improved 3.6% year over year. Revenues of $7.44 billion missed the Zacks Consensus Estimate of $7.52 billion, but improved 7.4% year over year. Passenger revenues (which accounted for 91.1% of the top line) grew 7.6% year over year to $6.78 billion.

Quarterly results benefited from revenue initiatives and continued cost control, which contributed to solid results and strong momentum. 2026 looks encouraging on the back of LUV’s customer-focused product offering, operational excellence, and dramatic progress from the transformational initiatives implemented last year.

Operating Statistics

Airline traffic, measured in revenue passenger miles, rose 3.2% year over year to 35.56 billion in the quarter under review. Capacity or available seat miles (ASMs) grew 5.8% year over year to 46.05 billion.As traffic failed to outpace capacity expansion, load factor (percentage of seat occupancy) fell 2 percentage points to 77.2%.

Passenger revenue per available seat mile (PRASM: a key measure of unit revenues) grew 1.7% year over year to 14.73 cents.

Revenue per available seat mile (RASM) grew 1.5% year over year to 16.16 cents.

Operating Expenses & Income

In the fourth quarter, Southwest Airlines incurred an operating income of $391 million compared with $278 million in the year-ago quarter. On an adjusted basis (excluding special items), the company reported operating income of $380 million compared with $397 million in the year-ago quarter. 

Total adjusted operating expenses (excluding profit sharing, special items, fuel and oil expenses) increased 6.6% in the fourth quarter of 2025. Consolidated unit cost or cost per available seat mile (CASM) excluding fuel, oil and profit-sharing expenses, and special items grew 0.8% year over year.

Fuel cost per gallon (inclusive of fuel tax: economic) rose 1.2% year over year to $2.45.

Liquidity

Southwest Airlines ended the fourth quarter with cash and cash equivalents of $3.23 billion compared with $2.90 billion at the end of the prior quarter. As of Dec. 31, 2025, the company had long-term debt (less current maturities) of $4.57 billion compared with $4.08 billion at the end of prior quarter.

LUV generated $295 million of cash from operating activities in the reported quarter. Fourth-quarter 2025 net capital expenditures were $859 million. During full year 2025, LUV repurchased shares worth $2.6 billion and paid $399 million in the form of dividends.

Outlook

LUV anticipates first-quarter 2026 unit revenues to be up at least 9.5%, on a year-over-year basis. LUV anticipates adjusted earnings per share to be at least 45 cents in the first quarter. LUV anticipates first-quarter 2026 capacity to be up 1-2%, year over year. First quarter 2026 CASM-X is expected to be up almost 3.5%, year-over-year, which includes a 1.1 point impact from the removal of six seats from the Boeing 737-700 fleet to enable extra legroom seating.First quarter 2026 fuel cost per gallon is expected to be around $2.40.

LUV now anticipates 2026 capacity to be up 2-3%, year over year. For 2026, LUV anticipates adjusted earnings per share to be at least $4.00 (which reflects the lower end of internal forecasts). For 2026, net capital spending is expected in the range of $3.0 billion to $3.5 billion; with 66 Boeing 737-8 aircraft deliveries expected in 2026 and plans to retire nearly 60 aircraft.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

The consensus estimate has shifted 30.94% due to these changes.

VGM Scores

At this time, Southwest has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock has a score of A on the value side, putting it in the top quintile for value investors.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Southwest has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Southwest is part of the Zacks Transportation - Airline industry. Over the past month, United Airlines (UAL), a stock from the same industry, has gained 12%. The company reported its results for the quarter ended December 2025 more than a month ago.

United reported revenues of $15.4 billion in the last reported quarter, representing a year-over-year change of +4.8%. EPS of $3.10 for the same period compares with $3.26 a year ago.

United is expected to post earnings of $1.31 per share for the current quarter, representing a year-over-year change of +44%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

United has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.

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This article originally published on Zacks Investment Research (zacks.com).

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