With Bag Fee Revenue and Basic Economy, Southwest Updates Forecast and Announces $2 Billion Share Buyback
The airline reported its second-quarter results, showing the first fruits of its business model shift and adjusting its financial targets for 2025.
Southwest Airlines presented its financial results for the second quarter of 2025 this July 23, revealing a net income of $213 million amidst a profound transformation of its business model. The company also announced the authorization of a new $2.0 billion share repurchase program and updated its full-year earnings guidance (EBIT) to a range of $600 million to $800 million.
The results mark a turning point for the airline, which recently implemented structural changes such as the introduction of checked baggage fees and a new "basic economy" fare, breaking from its long-standing "Transfarency" policy.
Bob Jordan, President and CEO of Southwest, stated that the company "continued to make meaningful progress against our transformational plan in the second quarter." He highlighted that the implementation of bag fees and the basic economy product had an "exceptional operational rollout" and that the financial benefit from bag fee revenue exceeded expectations.
What You Need to Know About Southwest's Changes
Does Southwest charge for bags now? Yes, the airline implemented checked bag fees, and the initial revenue is surpassing forecasts.
Is Southwest profitable? The company reported a net income of $213 million in the second quarter of 2025.
Are more changes coming? Yes, Southwest will begin selling assigned and premium seats on July 29, 2025, for flights operating from January 27, 2026.
Details on New Initiatives and Performance
The shift toward a diversified revenue model appears to be at the core of Southwest's strategy to navigate what the report itself describes as a "depressed" demand environment. The introduction of the "basic economy" fare on May 28, while fundamental for future product differentiation, caused a temporary reduction in the conversion rate on its website. The company stated it took "swift action" to refine the booking flow, which allowed sales to return to expected levels.
Furthermore, Southwest is preparing for its next major step: the sale of assigned and premium seating, which will begin on July 29, 2025, for travel starting in January 2026. This move, along with the retrofit of more than 220 aircraft to offer extra-legroom seats, aims to capture a segment of travelers willing to pay more for comfort.
The company reaffirmed its confidence in achieving its target of an incremental $1.8 billion EBIT contribution for 2025 from these initiatives.
Financial Performance and Outlook
Despite a 1.5% year-over-year decrease in total operating revenues to $7.2 billion, the company projects an improvement for the remainder of the year. For the third quarter of 2025, Southwest estimates its revenue per available seat mile (RASM) will range from down 2% to up 2%, with roughly flat capacity (ASMs).
Operating costs excluding fuel (CASM-X) increased by 4.7% year-over-year and are expected to grow between 3.5% and 5.5% in the third quarter, driven by inflationary pressures and costs associated with fleet modernization.
Fleet and Operations
During the second quarter, Southwest received 17 Boeing 737-8 aircraft and retired seven Boeing 737-700s, ending the period with a total fleet of 810 airplanes. The company updated its delivery forecast from Boeing, now expecting 47 new 737-8s in 2025, which will allow for the retirement of approximately 55 older aircraft during the year, including the sale of five Boeing 737-800s.
On the network front, the airline announced its intention to launch new service at Cyril E. King International Airport (STT) in St. Thomas early next year and expanded its partnerships, announcing a codeshare agreement with China Airlines and three new gateways for its partnership with Icelandair.
Returning capital to shareholders was a priority, with $1.6 billion returned in the second quarter through dividends and share repurchases. The new $2.0 billion repurchase program underscores the board's confidence in the execution of the strategic plan, as reported in its official press release.
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