Southwest Airlines Sees Strong Demand as Initiatives Target Billions in EBIT

Southwest Airlines NYSE: LUV CFO Tom Doxey said the carrier’s recent commercial initiatives have met or exceeded the company’s financial expectations, while demand remained strong into September and corporate revenue increased 30% year over year. Speaking at an investor conference, Doxey said Southwest has focused on initiatives it can control, including assigned seating, extra-legroom seating, baggage fees, loyalty-program changes and the rollout of Starlink connectivity. He said the company expects roughly 300 aircraft to have Starlink installed by the end of the year, with additional installations planned next year.

“The product is getting to a point now where I think it’s resonating with people that it didn’t resonate with before while building on the base,” Doxey said.

Demand Holds Up Into Traditionally Softer Period Southwest had previously said its third quarter was about 65% booked at the time of its second-quarter earnings report, with yields up 24% year over year. While Doxey did not update those figures, he said the demand environment has remained strong and September has exceeded the company’s expectations despite being a historically lower-demand month.

The carrier has limited visibility into the fourth quarter because booking curves remain relatively short, at roughly 60 days, he said. Still, Doxey said Southwest has not seen indications of decelerating demand heading into the holiday period.

Higher fuel prices have added costs, but Doxey said the company has been able to recover a substantial portion through higher revenue. If fuel remains elevated for a prolonged period, he said further revenue recovery would be needed. He added that airline pricing, even after recent unit-revenue increases, remains below 2019 levels on an inflation-adjusted basis compared with many other products. Doxey said revenue strength has been sufficient to offset incremental fuel expense and allow Southwest to remain positioned to meet its third-quarter EPS guidance.

Initiatives Expected to Add Billions in EBIT Doxey said assigned seating and extra-legroom products are expected to generate more than $1 billion in EBIT in 2026 and about $1.5 billion in 2027, when the initiatives will have a full-year contribution. Baggage-related initiatives are also expected to contribute $1 billion in EBIT this year, he said. Those company-specific gains are being added to broader industry revenue improvement and recovery from higher fuel costs, as well as incremental loyalty revenue from Southwest’s amended agreement with Chase. Southwest has also seen a greater share of customers purchasing ancillary products. Doxey said the percentage had risen from less than 20% historically to about 60%, although he declined to establish a specific target.