Revenue and Profit Miss Drive Double-Digit Drop
Southwest Airlines saw its stock plunge over 11% after posting second-quarter earnings and revenue that fell short of Wall Street expectations. The carrier reported adjusted earnings per share of 43 cents, missing the anticipated 51 cents, while quarterly revenue reached $7.24 billion, slightly under the $7.3 billion forecasted by analysts.
Net income for the quarter dropped to $213 million, or 39 cents per share, representing a 42% year-over-year decline. Adjusted net income stood at $230 million, down 38% from the previous year. Passenger revenue per seat mile came in at $14.10, also below expectations.
2025 Forecast Slashed Amid Ongoing Demand Volatility
CEO Bob Jordan revealed the airline’s updated full-year 2025 earnings forecast of $600 million to $800 million, a sharp downgrade from its earlier $1.7 billion projection. The airline had already withdrawn guidance in April due to economic uncertainty in the U.S.
Southwest is now expecting third-quarter unit revenue to range from a 2% decline to a 2% increase compared to the same period in 2024. The company attributes recent underperformance to macroeconomic pressures and weaker-than-anticipated domestic demand. However, Jordan noted a potential turning point, citing stabilized travel demand in recent weeks.
Business Model Revamp and Fare Policy Changes
Southwest is undergoing a significant transformation of its traditional business model. In May, it introduced basic economy fares that proved initially unpopular on its website, contributing to a half-point drag on unit revenue in Q2 and projected to reduce unit revenue by a full point in Q3. The airline is also phasing out longstanding policies such as two free checked bags and moving toward assigned seating and updated boarding procedures.
These changes mark a departure from Southwest’s low-frills, customer-friendly model as the airline attempts to enhance profitability and remain competitive in a shifting market environment. While controversial among loyal customers, these moves are part of a broader strategy to increase pricing flexibility and operational efficiency.
Buyback Announced Despite Soft Results
In a move that surprised some investors, Southwest announced a $2 billion share repurchase plan. While the buyback demonstrates confidence in the company’s long-term fundamentals, analysts remain cautious given current earnings headwinds and lagging performance metrics.
As peak travel season unfolds, Southwest hopes that stabilizing demand and its revamped service model will help recapture lost momentum. Still, the airline faces a tough climb amid stiff competition, changing consumer preferences, and uncertain macroeconomic conditions.
