Southwest Airlines (LUV) is starting the day off strong, with its shares trading higher in the pre-market session on Thursday. The airline announced a new $2.5 billion share repurchase program, demonstrating its commitment to returning value to shareholders. This new program replaces a previous one authorized in 2019.
Southwest is also focusing on cost control, achieving labor cost certainty by managing headcount through controlled hiring. The company expects to see substantial improvements in its bottom line, forecasting a 2% to 3% increase in operating revenue per available seat mile for the third quarter, exceeding its previous forecast. Economic fuel costs are also expected to be lower than previously projected.
These cost-cutting initiatives, combined with operational efficiency improvements, will deliver an estimated $500 million in annual cost savings by 2027. Southwest expects to achieve an impressive after-tax return on invested capital (ROIC) of 15% or greater by 2027, surpassing its weighted average cost of capital (WACC) and signaling a healthy financial outlook.
In a major shift for the airline, Southwest will begin selling assigned seats in the second half of 2025, with the first flights using this new model scheduled for the first half of 2026. The new boarding process will incorporate seat assignments, but will still prioritize operational efficiency and enhance the customer experience. Southwest plans to maintain its distinctive boarding process by using position numbers and signage at the gate.
Investors are clearly responding positively to these announcements, with LUV shares soaring by over 6% in pre-market trading. The combination of share buybacks, cost savings, and a new boarding model suggests that Southwest is well-positioned for sustained growth and profitability in the years ahead.
