Southwest Airlines soars 11% on assigned seating transformation
2026 EPS guidance of $4.00 beats analyst estimates by 25% as carrier ends 50-year open seating policy
Southwest Airlines shares surged 10.6% on Thursday, reaching a new 52-week high of $45.09 after the carrier issued 2026 profit guidance that significantly exceeded Wall Street expectations, marking a dramatic shift in strategy for the once-iconic budget carrier.
The Dallas-based airline projected adjusted earnings per share of at least $4.00 for 2026, well above the consensus estimate of $3.19 to $3.22, representing approximately 25% upside to analyst expectations. Southwest also forecast first-quarter revenue per available seat mile growth of at least 9.5%, signaling strong demand for its newly implemented assigned seating system.
The guidance comes just two days after Southwest officially ended its 50-year open seating policy on January 27, transitioning to a traditional assigned seating model that includes premium seat options for additional fees. The move represents the most significant operational change in the carrier's history and fundamentally alters the business model that once differentiated Southwest from legacy carriers.
"Investors are cheering the end of Southwest's open-seating era as the airline forecasts a big 2026 profit," according to MarketWatch. The stock's rally pushes shares above the consensus analyst target price of $41.93 and extends the carrier's 2026 gains to more than 20%.
The transformation reflects Southwest's strategy to close the revenue gap with larger competitors like American Airlines, Delta Air Lines, and United Airlines, which have long offered premium seating and assigned seats. JPM Stanley analysts upgraded Southwest to Overweight on January 9, citing the potential for meaningful revenue improvement from the seating changes.
In its fourth-quarter and full-year 2025 results announcement, Southwest management emphasized that the business transformation initiatives extend beyond seating changes. The carrier is implementing broader revenue management improvements, including enhanced dynamic pricing capabilities and new loyalty program features.
The strong 2026 outlook signals a significant acceleration from the airline's recent performance. Through the trailing twelve months, Southwest has reported earnings per share of $0.63 and a profit margin of just 1.38%, reflecting the competitive pressures facing the airline industry. The forward price-to-earnings ratio has compressed to 15.38x based on the new guidance, down from a trailing multiple of 65.6x.
Analyst sentiment remains mixed despite the bullish guidance. Of 25 analysts covering the stock, 3 rate it Strong Buy, 4 recommend Buy, 12 maintain Hold ratings, while 3 advise Sell and 3 suggest Strong Sell. Jefferies analysts maintained a Hold rating on January 26, just days before the earnings announcement, suggesting some investors remain cautious about execution risks.
The seating policy change represents a departure from the egalitarian philosophy that defined Southwest's brand for five decades. The carrier's "cattle call" boarding process, where passengers chose seats on a first-come, first-served basis, became legendary in the airline industry and was credited with creating faster turnaround times and operational efficiency.
However, rising labor and fuel costs, combined with increasing competition from ultra-low-cost carriers, pressured Southwest to explore new revenue streams. Premium seating fees could generate hundreds of millions in additional annual revenue if adoption rates align with industry averages for carriers offering similar products.
Southwest's transformation comes as the broader airline industry shows signs of recovery from pandemic-related disruptions. The carrier's market capitalization stands at $21.7 billion, with shares trading at 0.79 times trailing twelve-month revenue. The stock has rallied more than 90% from its 52-week low of $23.45, reflecting growing investor confidence in the turnaround strategy.
The first-quarter revenue guidance of 9.5% growth in RASM suggests strong pricing power even as the carrier implements significant operational changes. Southwest operates an all-Boeing 737 fleet across a point-to-point domestic network, which provides flexibility but also limits exposure to international recovery trends that have benefited larger rivals.
Investors will be watching execution closely in the coming quarters as Southwest integrates the new seating system and seeks to capture premium revenue without alienating its core customer base of value-conscious travelers. The carrier's next major test will be first-quarter earnings, where management will provide more detailed commentary on early results from the assigned seating rollout.