Freedom Broker analysts raise target price for Southwest Airlines

Freedom Broker experts raised the target price for shares of Southwest Airlines Co. (LUV) from $58 to $60 and maintained their “Buy” recommendation. At the current price of $45.3, the upside potential is about 32.5%. According to the experts, the company is already seeing a tangible effect from a large-scale transformation of its business model: record revenue, profit growth, and margin expansion confirm that the new commercial initiatives are starting to work even amid expensive jet fuel.

Southwest Airlines is one of the largest U.S. airlines, specializing primarily in domestic travel. In recent years, the carrier has been undertaking the largest transformation in its history: expanding its fare lineup, developing premium services, strengthening the Rapid Rewards loyalty program, and shifting the focus to improving profitability rather than increasing passenger volumes.

Business transformation is changing Southwest Airlines’ economics

Southwest is moving from a volume-driven model to a yield-driven one. This creates the prerequisites for multi-year margin expansion and improved business efficiency, Freedom Broker analysts believe.

In the experts’ view, a key driver of the company’s investment appeal is improving revenue quality. An increasing share of Southwest’s income comes not only from ticket sales, but also from ancillary services, corporate clients, the Rapid Rewards loyalty program, and its partnership with JPMorgan Chase to issue co-branded bank cards. 

Record revenue and profit above expectations

Adjusted earnings per share came in at $0.94 versus the consensus forecast of $0.51. Operating revenue rose 16.4% year over year to a record $8.43bn, while adjusted operating revenue reached $8.7bn, up 20.3%.

Net income totaled $233m, or $0.47 per share, while adjusted net income was $465m, or $0.94 per share. Despite an almost $889m increase in jet fuel costs compared with last year, adjusted operating margin rose to 6.7%, up 3.3 percentage points.

At the same time, total operating expenses increased 16.1% to $8.15bn; however, expenses excluding fuel, special items, and profit-sharing payments rose only 3.6%, indicating continued strong cost discipline.

New commercial strategy 

Freedom Broker analysts note that the quality of revenue growth has improved markedly. Adjusted RASM (revenue per available seat mile) rose 20.1% year over year. Major contributions came from the new fare structure, additional paid services, sales of premium-legroom seats, cooperation with online travel agencies, as well as higher income from the corporate segment and the loyalty program.

An additional positive factor was the development of the Rapid Rewards loyalty program. The number of new members increased by 35%, and sales of Chase co-branded credit cards (together with JPMorgan Chase) rose by 28%.

High fuel prices remain the main risk

Despite the strong results, analysts believe that high jet fuel prices remain the main constraining factor for the industry.

In the second quarter, fuel cost was $3.92 per gallon, and in the third quarter the company expects it at $3.70–3.75 per gallon. Southwest also forecasts adjusted EPS in the third quarter in the range of $0.50–0.75, with RASM growth of 17.5–19.5%. For full-year 2026, the company expects adjusted EPS in the range of $3.25–4.25.

Why analysts raised Southwest Airlines’ target price

Freedom Broker believes that Southwest’s current transformation is only beginning to unlock its potential. The company continues to optimize its route network, is actively modernizing its Boeing 737 MAX fleet, and is steadily cutting costs through digitalization and higher operational efficiency. The shift to a more profitable business model will enable Southwest to grow earnings faster than most competitors over the coming years, particularly those focused primarily on the U.S. domestic market.

Analysts’ interest in Southwest Airlines has been building for several quarters. After the release of first-quarter 2026 results, Freedom Broker maintained its “Buy” recommendation and raised the target price to $58, citing the successful launch of the new commercial strategy. At that time, the company for the first time demonstrated a sustained effect from introducing assigned seating, additional seats with increased legroom, and an expanded fare lineup.

In spring, analysts also called Southwest shares one of the most interesting ideas in the aviation sector amid the possible exit of Spirit Airlines from the market. In their view, reduced supply in the low-cost segment creates favorable conditions for fare growth and higher load factors for Southwest flights.

Not an individual investment recommendation.