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Why Is Southwest (LUV) Down 6.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for Southwest Airlines (LUV - Free Report) . Shares have lost about 6.6% in that time frame, underperforming the S&P 500.

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

Southwest Airlines Lags on Q2 Earnings

Southwest Airlines reported disappointing second-quarter 2025 results, wherein both earnings and revenues lagged the Zacks Consensus Estimate.

Quarterly earnings of 43 cents missed the Zacks Consensus Estimate of 51 cents and declined 25.9% year over year. Revenues of $7.24 billion missed the Zacks Consensus Estimate of $7.29 billion as well as declined 1.5% year over year. Passenger revenues (which accounted for 91.5% of the top line) decreased 1.3% year over year to $6.62 billion.

Domestic leisure travel stabilized during second quarter 2025, with recent trends showing signs of improvement.

Operating Statistics

Airline traffic, measured in revenue passenger miles, fell 3.5% year over year to 36.88 billion in the quarter under review. Capacity or available seat miles (ASMs) grew 1.6% year over year to 46.99 billion.As traffic failed to outpace capacity expansion, load factor (percentage of seat occupancy) fell 4.1 percentage points to 78.5%. 

Passenger revenue per available seat mile (PRASM: a key measure of unit revenues) fell 2.8% year over year to 14.10 cents.

Revenue per available seat mile (RASM) fell 3.1% to 15.41 cents.

Operating Expenses & Income

In the second quarter, Southwest incurred an operating income of $225 million, compared with an operating income of $398 million in the year-ago reported quarter. On an adjusted basis (excluding special items), the company reported operating income of $245 million, compared with $405 million of operating income in the year-ago reported quarter.

Total adjusted operating expenses (excluding profit sharing, special items, fuel and oil expenses) increased 6.4%.

Fuel cost per gallon (inclusive of fuel tax: economic) fell 15.9% to $2.32.

Consolidated unit cost or cost per available seat mile (CASM) excluding fuel, oil and profit-sharing expenses, and special items grew 4.7% year over year.

Liquidity

Southwest Airlines ended the second quarter with cash and cash equivalents of $3.47 billion compared with $8.13 billion at the end of prior quarter. As of Jun 30, 2025, the company had long-term debt (less current maturities) of $4.08 billion, which was flat sequentially

LUV generated $401 million of cash from operating activities in the reported quarter. Second quarter 2025 capital expenditures were $635 million, owing to aircraft-related capital spending, coupled with technology, facilities, and operational investments.

During second-quarter 2025, LUV returned $1.6 billion to shareholders which includes $103 million of dividend payments and $1.5 billion of share repurchases.

By repurchasing the remaining $1.5 billion through an accelerated share repurchase (ASR) program, LUV has completed the September 2024 $2.5 billion share repurchase authorization in second quarter 2025. Final settlement of shares purchased through the second quarter 2025 ASR program is anticipated to occur by the end of July 2025.

LUV’s board of directors recently approved a $2.0 billion share repurchase authorization expected to be completed over a period of up to two years.

Outlook

LUV anticipates its third-quarter 2025 unit revenues to be in the range of down 2% to up 2% on roughly flat capacity, both on a year-over-year basis. This guidance range assumes a modest sequential improvement in demand. Company-specific initiatives provide a unique offset to the broader industry revenue impact, and will continue to accelerate throughout third quarter 2025.

Economic fuel costs per gallonare expected to be $2.40 to $2.50. Interest expenses are expected to be $35 million in the third quarter.

LUV continues to expect to achieve its $370 million cost reduction target this year. LUV anticipates third quarter 2025 CASM-X to increase in the range of 3.5 - 5.5%, on a year-over-year basis. This increase is due to the continuation of inflationary pressures, including those associated with labor contracts ratified in 2024, as well as approximately one point from the timing of engine overhaul expenses and one-half point from aircraft retrofit costs in advance of extra legroom seating launching in January 2026. Excluding the impact of book gains from fleet transactions in the fourth quarter of both years, LUV continues to expect fourth quarter 2025 CASM-X to be up low-single digits, year-over-year. LUV remains focused on driving efficiencies to offset overall inflationary cost pressures and achieve its multi-year cost reduction targets.

LUV continues to anticipate its 2025 capital spending to be in the range of $2.5 billion to $3.0 billion (including the additional aircraft deliveries now expected, as well as the impact of the expected sale of five -800 aircraft this year).

LUV’s full year 2025 EBIT guidance assumes further sequential improvement from third quarter 2025, driven by accelerating incremental revenue from company-specific initiatives, the recovery of the temporary basic economy optimization impact, and anticipated improvement in domestic leisure travel trends.

LUV is reaffirming its full year incremental EBIT contribution targets of $1.8 billion for 2025 and $4.3 billion for 2026 from those initiatives.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -106.21% due to these changes.

VGM Scores

Currently, Southwest has a average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock has a score of A on the value side, putting it in the top 20% 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, Southwest has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Southwest belongs to the Zacks Transportation - Airline industry. Another stock from the same industry, Ryanair (RYAAY - Free Report) , has gained 4% over the past month. More than a month has passed since the company reported results for the quarter ended June 2025.

Ryanair reported revenues of $4.92 billion in the last reported quarter, representing a year-over-year change of +26.1%. EPS of $1.74 for the same period compares with $0.68 a year ago.

For the current quarter, Ryanair is expected to post earnings of $3.53 per share, indicating a change of +25.2% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Ryanair. Also, the stock has a VGM Score of A.


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