Southwest's Profits Drop 42%, Yet It's Top U.S. Airline Stock

• Southwest expects assigned seating and extra legroom to generate $1 billion in pretax earnings in 2025 and $1.5 billion by 2027
• Unlike Delta and United which gained 17% each, Southwest's stock surge is attributed to its new initiatives rather than industry-wide demand improvements
• The airline cut profit forecasts for 2025 due to weak demand from tariff concerns and government shutdown impacts

Southwest Airlines reported a 42% profit decline in the first nine months of 2025 compared to 2024, yet its stock has outperformed all other major U.S. airlines this year. The carrier's shares hit a 2½-year high this week, significantly outpacing competitors like Delta and other airlines, which have risen approximately 17% year-to-date.

The stock surge is attributed to Southwest's major operational transformation rather than market conditions. Beginning January 27, the airline will implement assigned seating and extra legroom options on its all-Boeing 737 fleet, abandoning its traditional open-seating model. Extra legroom seats are priced around $80 each way on routes like Baltimore to Las Vegas.

Management projects these initiatives will generate $1 billion in pretax earnings in 2025 and $1.5 billion by 2027. The airline has also eliminated its decades-old policy of free checked bags and introduced no-frills fare options for the first time in its history.

Despite the positive stock performance, Southwest joined other airlines in cutting 2025 profit forecasts due to weakened demand early in the year, attributed to President Trump's tariffs and Washington cost-cutting measures. A recent government shutdown further impacted bookings, prompting another downward revision.

Barclays upgraded Southwest's stock this month, with analyst Brandon Oglenski projecting adjusted earnings above $4 per share. CEO Bob Jordan expressed confidence in the new initiatives, stating that current bookings support the business case for assigned seating and extra legroom. The company is expected to provide its full 2025 outlook alongside 2024 earnings in late January.