stockrowWhat it does
Southwest Airlines Co. operates scheduled passenger flights in the United States and near-international markets. It was founded in 1967, is headquartered in Dallas, and is led by President and Chief Executive Officer Robert E. Jordan.
The airline sells transportation primarily through a network designed around direct, point-to-point flights rather than the hub-and-spoke model used by many major U.S. airlines. It also designs parts of its network around core stations to offer both nonstop flights and one-stop itineraries. This model is intended to support frequent flights in selected markets, including short-haul, mid-range, and longer-haul routes.
As of December 31, 2025, Southwest had 803 Boeing 737 aircraft and served 117 destinations in 42 states, the District of Columbia, Puerto Rico, and ten near-international countries. It sells four main fare categories—Basic, Choice, Choice Preferred, and Choice Extra—with different rules, seat choices, baggage benefits, points earnings, and refundability.
The company began operating assigned and extra-legroom seating on January 27, 2026. It also operates redeye flights, offers vacation packages through Getaways by Southwest, and has partnerships with international airlines that connect its network to additional destinations. Management said on the call that Southwest had also made flight shopping available through ChatGPT.
How it makes money
Southwest earns most of its revenue by selling passenger tickets. Its fares range from Basic, its generally lowest-priced product, to Choice Extra, which includes seat selection, two checked bags, early boarding, higher Rapid Rewards point earnings, and other benefits. The company also sells preferred and extra-legroom seats, priority boarding, baggage services, pet travel, and unaccompanied-minor transportation.
For FY2025, passenger non-loyalty revenue was $20.4 billion and represented 66.7% of revenue. Passenger loyalty air transportation revenue was $3.3 billion, or 10.6%, while passenger ancillary services sold separately generated $1.8 billion, or 5.98%. Other Revenue was $2.6 billion, or 8.48%, and freight revenue was $171.0 million.
Rapid Rewards is a recurring source of customer engagement and partner activity. Members earn points from Southwest base fares and qualifying purchases with partners, including hotels, car rental agencies, restaurants, and co-branded Chase Visa cards. Points can be redeemed for available Southwest seats, with no blackout dates, and do not expire. Businesses can earn points through Rapid Rewards Business while their travelers earn points personally.
Latest reported totals: operating revenues were $28.1 billion in 2025; management said on the call that Q3 2026 operating revenue was $8.4 billion.
Management said on the call that Rapid Rewards will add a Platinum tier, international loyalty partnerships, partner redemptions, ancillary-purchase redemptions, a premium co-brand card, and ICON Lounges. The company expects its fleetwide Starlink rollout for Rapid Rewards members to be complete by the following year.
| Product or service | Revenue, FY2025 | Share | Change on the year |
|---|---|---|---|
| Passenger non-loyalty | $20.4 billion | 66.7% | −0.13% |
| Passenger loyalty - air transportation | $3.3 billion | 10.6% | −6.46% |
| Other Revenue | $2.6 billion | 8.48% | 18.2% |
| Other | $2.4 billion | 7.69% | 1.25% |
| Passenger ancillary sold separately | $1.8 billion | 5.98% | 78.3% |
| Freight | $171.0 million | 0.56% | −2.29% |
Customers and how it sells
Southwest serves leisure travelers, business travelers, Rapid Rewards members, co-branded cardmembers, and corporate accounts. Its fare structure gives customers a choice between lower-priced, more restricted tickets and products with refundable tickets, seat selection, bags, boarding priority, and same-day travel options.
North America generated $27.3 billion, or 97.3%, of FY2025 revenue. Latin America generated $756.0 million, or 2.69%. The company serves ten near-international countries, including Mexico, Jamaica, The Bahamas, Aruba, the Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos.
Customers can book through Southwest channels and through Expedia, Priceline, Google Flights, Kayak, and Skyscanner. The company uses international-airline partnerships to give customers access to destinations beyond its own network. Rapid Rewards members can earn points through Southwest travel, partner purchases, Chase co-branded cards, and the Southwest Airlines Rapid Rewards Debit Card.
Management said on the call that managed-business passenger volumes increased roughly 9% and managed-business revenue increased 29% in Q3 2026, despite essentially flat capacity. Management also said corporate demand remained strong into the fourth quarter.
| Region | Revenue, FY2025 | Share | Change on the year |
|---|---|---|---|
| North America | $27.3 billion | 97.3% | 2.25% |
| Latin America | $756.0 million | 2.69% | −5.26% |
Suppliers and costs
Southwest uses Boeing as the sole manufacturer of its aircraft and operates a single aircraft type. Its future fleet plans depend on Boeing production and Federal Aviation Administration certification of new aircraft.
Its single-type fleet is intended to simplify scheduling, maintenance, flight operations, safety management, and training. The company also uses redeye flying, shorter aircraft turn times, digital processes, and network changes to increase aircraft utilization.
Labor was Southwest’s largest operating cost category in 2025, representing approximately 46.9 percent of operating expenses. Fuel and oil was its second-largest cost category. Fuel prices can change quickly, and Southwest closed its fuel-hedging program during 2025.
Management said on the call that Q3 2026 fuel costs were $109 million above the assumptions used in its prior guidance. Management also said the company had 400 aircraft that it expects ultimately to replace with MAX aircraft.
- Revenue$28.1B
- Cost of revenue−$21.6B
- Other operating costs−$6.0B
- Operating income$428.0M
Competitive position
Southwest competes in the airline industry for domestic and near-international passenger travel. Its network competes through nonstop service, frequent schedules, fares, airport access, customer experience, loyalty benefits, distribution channels, and service to business and leisure travelers. The company identifies changes in the competitive environment, including consolidation and bankruptcies, as factors that can affect operations.
Spirit is named by Southwest management as an airline in a difficult situation. Air Canada is also named in discussion of airline loyalty-program transactions, while Southwest is pursuing international partnerships to give members additional redemption options.
Southwest’s stated sources of differentiation include a point-to-point network, use of secondary or downtown airports, a single Boeing 737 fleet, Rapid Rewards, co-branded cards, and its newer assigned seating, extra-legroom seating, fare bundles, and partner distribution. It also offers free Wi-Fi to Rapid Rewards members through sponsorship and is installing Starlink Wi-Fi across its fleet.
Our reading: The route structure and all-737 fleet provide a medium-strength operating moat because they simplify operations and support direct routing, but they do not prevent other airlines from matching routes or fares.
Our reading: Rapid Rewards, the Chase relationship, and added partner redemptions are a medium-strength customer-retention moat because they connect flight purchases, card spending, status, and travel benefits.
Our reading: Product changes may broaden Southwest’s addressable customer groups, but they also make execution and customer acceptance important competitive variables.
| Competitor | Where they compete | Threat (our reading) |
|---|---|---|
| Spirit | U.S. airline industry | Medium |
| Air Canada | airline loyalty and partnership activity | Low |
Growth opportunities
Southwest’s growth plans center on increasing the revenue earned from each customer, extending its network, improving aircraft use, modernizing its fleet, expanding distribution, and adding loyalty products. The company has introduced assigned seating, preferred seating, extra-legroom seating, baggage fees for most fare products, redesigned fare bundles, and redeye flights.
The company has expanded into online travel channels and formed partnerships with international airlines. It launched Getaways by Southwest and plans to grow its international connectivity through partner destinations and loyalty redemptions. Management said on the call that international loyalty partnerships and partner redemptions are planned for the following spring, with ancillary redemptions including seat selection to follow later in 2027.
Fleet modernization is another growth and cost-efficiency lever. The company expects 67 Boeing 737-8 and 737-7 deliveries and approximately 60 retirements in 2026. Management said on the call that deliveries in 2027 are likely to be higher than in 2026, while retirements will also increase.
Customer-experience investment includes fleetwide Starlink Wi-Fi, in-seat power, larger overhead bins, cabin retrofits, ICON Lounges, a premium co-brand card, and a Rapid Rewards Platinum tier. Management said on the call that lounges were under construction in Baltimore, Honolulu, and Nashville, with at least seven additional locations planned.
The company expects earnings to benefit from the way customers book assigned and extra-legroom seating, including close-in bookings and business and price-flexible customer demand.
- $15.8BFY2021
- $23.8BFY2022
- $26.1BFY2023
- $27.5BFY2024
- $28.1BFY2025
Structural risks
-
Fuel exposure. Airlines are dependent on energy, and jet fuel and oil represented approximately 19 percent of Southwest’s operating expenses in 2025. Even a small change in market fuel prices can significantly affect profitability. Management said on the call that higher fuel prices created an $820 million year-over-year headwind in Q3 2026.
-
Boeing and certification dependence. Boeing is Southwest’s sole aircraft manufacturer. Production constraints, supply-chain shortages, delivery delays, labor disruptions, and order backlogs may limit aircraft availability. The timing of aircraft certification and entry into service is determined by the FAA.
-
Demand and external disruption. Airline results are sensitive to economic conditions and consumer travel patterns. Weather, natural disasters, air-traffic-control disruptions, controller shortages, airport delays, government restrictions, disease outbreaks, terrorism, war, and political instability can disrupt flights and demand.
-
Labor costs and collective bargaining. Salaries, wages, and benefits were Southwest’s largest operating cost in 2025. Ratified contracts and wage inflation have affected its cost structure, while collective-bargaining requirements and demands remain an operating risk.
-
Technology, cybersecurity, and data privacy. Southwest depends heavily on technology and is making substantial information-system changes. System failures, breaches, implementation delays, payment-card-data issues, and evolving data-privacy and cybersecurity obligations could affect operations and increase costs.
-
Regulation and airport constraints. The company is subject to extensive aviation, consumer-protection, safety, security, environmental, accessibility, and data rules. Airport gates, slots, route authorities, operating permits, airport charges, and new taxes or fees can constrain operations or raise costs.
Bottom line
Our reading
Our reading: Southwest is a predominantly North American passenger airline whose economics depend on ticket sales, ancillary products, loyalty activity, fleet utilization, labor costs, and fuel costs. Its point-to-point network, single-type Boeing 737 fleet, Rapid Rewards program, and Chase relationship provide operating and customer-retention advantages, while reliance on Boeing and exposure to fuel, labor, technology, and regulatory costs remain material constraints. The company is reshaping its offering around assigned seats, ancillary sales, business travel, broader distribution, and loyalty-led products.