Southwest slashes profit outlook by 65% amid weak demand
- Southwest Airlines announced a drastic cut in its 2025 profit forecast, lowering it by up to 65% due to weak domestic demand.
- The airline's stock price fell over 12% following the announcement, as well as missing Wall Street's earnings estimates by 16%.
- These developments highlight the challenges in the airline industry, pointing to ongoing transformations and investor pressures on the company.
In July 2025, Southwest Airlines faced a major downturn as the company drastically reduced its profit forecast for the year 2025. The airline's executives attributed this significant cut in profit outlook to weak domestic travel demand, which caused Southwest's stock to tumble by more than 12%. This updated forecast indicates earnings before taxes will fall to between $600 million to $800 million, a staggering 53% to 65% decline from the earlier estimate of $1.7 billion. Additionally, Southwest Airlines missed Wall Street's expectations for second-quarter earnings by 16%, reflecting broader concerns about the current state of the airline industry, particularly in the United States. The situation escalated after Southwest made these declarations, joining a wave of airlines reporting weaker leisure travel, echoing similar challenges experienced by major carriers like Delta, United, and American Airlines. The decline in demand for domestic economy travel has become a focal point for both airline executives and analysts, which may influence consumer behavior, especially in light of impending tariffs. Economic uncertainty, propelled by former President Donald Trump's introduction of tariffs, has shaken consumer confidence, leading to lower expectations for travel spending. Hence, as demand remains sluggish, it raises questions regarding consumer spending habits in this sector. Amid these challenges, Southwest Airlines is also navigating through a transformative period in its operations. In June 2024, the airline was targeted by Elliott Investment Management, which acquired a $1.9 billion stake and proposed ambitious changes to improve profitability and corporate governance. Among these, Southwest agreed to adopt major shifts in its business model, including the phasing out of its decades-long open seating policy in favor of assigned seating, marketing new premium seating options, and later incorporating overnight flights. Although these efforts aim to regain user interest and stabilize profits, the execution during unfavorable market conditions complicates the airline’s recoverability. Furthermore, Savanthi Syth, an airline sector analyst from Raymond James, was noted commenting about the turbulent situation surrounding Southwest’s stocks and the anticipated controversy that may ensue. The company has also opted to initiate a new $2 billion share buyback program aimed at improving shareholder value over the next two years. As Southwest Airlines continues to redefine its operations amidst investor pressure and changing travel trends, the results will be crucial in determining the airline’s competitiveness going forward.