Southwest Airlines management forecasts a return to full-year profitability in 2025 after a challenging period of elevated operating costs. For Q4, the carrier anticipates an adjusted operating margin in the low single digits, driven by modest capacity growth of approximately 3% year-over-year and incremental EBIT contribution from the introduction of assigned seating. Fuel expenses are expected to moderate into 2026, with jet fuel hedges covering nearly 30% of projected consumption at an average price roughly 10% below current market rates, providing a potential tailwind to unit costs next year.

Analysts model mid-single digit revenue growth for 2025, supported by a rebound in corporate travel and higher ancillary revenue from seat selection fees. Consensus projections peg Q4 EPS north of break-even, compared with a small loss in the prior-year quarter, based on unit revenue growth of around 5% and a slight expansion in operating margin. Management’s guidance for full-year 2025 EPS stands at $2.50 to $3.00, implying a modest pickup in cash flow generation and a reduction in leverage to below 4x net debt to EBITDA by year-end.

Despite improving fundamentals, Southwest shares remain elevated relative to intrinsic value estimates. Using a discounted cash flow analysis with a 7.5% weighted average cost of capital and a 2.5% terminal growth rate, fair value is calculated at $27.40 per share—approximately 15% below current trading levels. The gap reflects strong investor optimism around load factor recovery and ancillary revenue growth, but leaves limited margin of safety for value-oriented, long-term investors given execution risks around cost control and fuel price volatility.