Last Update25 Oct 25Fair value Increased 2.11%
Southwest Airlines’ analyst price target has been raised from approximately $33.06 to $33.76. Analysts cite improved profit margin expectations and accelerating industry revenue growth as driving factors behind the update.
Analyst Commentary
Recent updates from Wall Street have provided new insights into Southwest Airlines’ outlook. Analysts are revisiting forecasts in light of sector trends and company-specific developments, resulting in a range of perspectives on Southwest's future performance.
Bullish Takeaways
- Several bullish analysts have increased their price targets for Southwest, citing expectations of improved profitability through 2026 and beyond.
- Industry profits are expected to increasingly concentrate among a handful of carriers. Southwest is positioned to benefit from ongoing changes in airline product offerings and technology-driven merchandising strategies.
- New long-term estimates from major institutions like JPMorgan reflect confidence in Southwest’s ability to generate margins above current consensus and accelerate revenue growth over the next several years.
- Momentum in U.S. airline sector revenue is viewed as an indicator that leading carriers, including Southwest, may capitalize on incremental margin expansion and sustained demand recovery.
Bearish Takeaways
- Bearish analysts remain cautious about Southwest. They maintain neutral or hold ratings even as they raise their price targets, signaling limited conviction in a significant near-term rally.
- There is ongoing concern that meaningful industry profit growth will accrue mostly to a select group of premium or brand-loyal carriers. This may leave Southwest relatively less advantaged compared to its larger competitors.
- Some analysts anticipate that challenges facing “impaired” or non-premium airlines could persist, potentially limiting Southwest’s margin recovery pace and making its return to peak profitability more difficult.
- While sector-wide revenue growth is promising, only those airlines with compelling margin execution strategies are seen as having the greatest upside through 2026. This may not fully include Southwest under all scenarios.
What's in the News
- The Federal Aviation Administration has delayed flights at multiple major airports for a third day because of ongoing government shutdown-related staffing shortages. This has impacted nearly 3,000 flights and affected airlines including Southwest. (Reuters)
- Southwest Airlines is making its summer 2026 flight schedule available for purchase, increasing service in key cities, launching new routes, and debuting its first scheduled service to Anchorage, Alaska.
- The airline has entered a new interline agreement with EVA Air, which expands traveler connectivity between major U.S. cities and Asia and offers coordinated booking and baggage services.
- Southwest has completed a share buyback tranche by repurchasing 7.9 million shares for $250 million as part of its ongoing capital return program.
- The partnership with T-Mobile will bring free unlimited Wi-Fi to all Rapid Rewards Members on Southwest flights, making it the largest U.S. airline to offer fleetwide free Wi-Fi starting in October 2025.
Valuation Changes
- Consensus Analyst Price Target has risen slightly from $33.06 to $33.76, reflecting moderately improved expectations.
- Discount Rate has fallen significantly from 10.47% to 8.86%, suggesting analysts now perceive lower risk or a more favorable investment environment for Southwest.
- Revenue Growth projections have increased modestly from 6.03% to 6.67% annually, pointing to slightly higher anticipated revenue expansion.
- Net Profit Margin has improved moderately from 6.18% to 6.58%, indicating a more optimistic outlook for profitability.
- Future P/E ratio has decreased from 9.29x to 8.31x, which implies analysts expect stronger future earnings relative to share price.
Key Takeaways
- 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.
- 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 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.
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