Southwest Airlines Stock Is Falling After Earnings Beat. The Changes Don’t Impress Wall Street.

Southwest Airlines started charging for checked bags in May, ending its ‘bags fly free’ policy. (Getty Images)

Key Points

• Southwest Airlines reports record third-quarter revenue and profit, with adjusted earnings of 11 cents a share on revenue of $6.95 billion.
• The airline anticipates achieving ‘all-time quarterly record operating revenue’ for the fourth quarter.

Southwest Airlines beat expectations on Wednesday, reporting record third-quarter revenue and profit that were both higher than Wall Street’s and its own projections. Wall Street wasn’t impressed.

The carrier reported adjusted earnings of 11 cents a share on revenue of $6.95 billion.

For the fourth quarter, Southwest said it expects to post “all-time quarterly record operating revenues.”

Analysts had expected an adjusted loss of 4 cents a share on revenue of $6.92 billion. For the full year, Wall Street is looking for adjusted earnings of 94 cents a share on revenue of $28.1 billion.

But Southwest’s shares tumbled 7.5% Thursday, after closing down 2.7% at $33.76 on Wednesday. The stock has fallen 7.6% this year.

CEO Bob Jordan said that Southwest is making the “most significant transformation” in its history, including selling assigned and extra legroom seating for travel beginning Jan. 27, 2026, and that the results show a profitable quarter, with better-than-expected unit revenue and unit costs. “While early, indicators for our new assigned and extra legroom seating products are in line with expectations. We are encouraged by our momentum and confident in our direction,” he said.

The indicators didn’t appear to please investors. Third-quarter passenger revenue hit a third-quarter record of $6.3 billion, but rose just 1% from the prior year. Third-quarter operating revenue also rose 1.1% to a third-quarter record of $6.9 billion.

Earnings before interest, taxes, depreciation, and amortization fell to $337.5 million from $470 million a year before. Analysts had anticipated Ebitda of $345.6 million.

Southwest expects “meaningful margin expansion in the fourth quarter.” The carrier has retrofitted more than 400 aircraft with extra-legroom seating.

For full-year 2025, Southwest expects adjusted earnings before interest and taxes of $600 million to $800 million.

Southwest reported results after Delta Air Lines earlier this month beat third-quarter expectations and full-year guidance. United Airlines last week posted third-quarter earnings and fourth-quarter outlook above expectations, but its third-quarter revenue fell short of estimates.

In April, Southwest cut about 1,750 jobs, about 15% of its corporate workforce, in its first-ever involuntary layoffs, as it aimed to catch up to its airline peers. Management said the reductions were aimed at saving $210 million this year and $300 million in 2026.

Southwest stock has been on a turbulent round-trip this year. The low-cost carrier began charging baggage fees in May for the first time in its 54-year history, along with assigned seating and other new measures to boost revenue.

Southwest’s stock, like many of its peers, has had a turbulent year. It tumbled after President Donald Trump unveiled sweeping tariffs in April before recovering well and then falling sharply again in July after disappointing second-quarter earnings.

It’s still one of the sector’s better performers in 2025—below Delta Air Lines’ 1.8% fall and United Airlines’ 0.7% slip, but well above some low-cost peers. JetBlue Airways has declined 41% this year, while Alaska Air has fallen 27%.

“While risking share loss in competitive cities, it should be outweighed by the benefits of higher ancillary revenue and lower costs,” Raymond James analyst Savanthi Syth said before Wednesday’s results, noting that Southwest was carrying twice as many bags as its peers before it started charging.

In July, Southwest said its financial benefit had exceeded expectations so far, with no negative operational impact. That’s not the only change—the carrier has also introduced assigned seating fees and a new basic economy fare.

“The new initiatives eliminate key points of differentiation from competitors and risk alienating a segment of the traditional customer base,” Gimme Credit analyst Jay Cushing wrote in a note earlier this month. “But with a structural shift higher in costs (primarily labor) and changing consumer preferences for premium products, Southwest is under pressure to add these incremental revenue sources.”

Alaska Air will report financial results on Friday.

Write to Callum Keown at callum.keown@dowjones.com