Southwest shares are at three-year highs. Analyst promises a profitable year for the carrier

Shares of Southwest Airlines rose to their highest level in three and a half years amid a rating upgrade from Barclays and expectations of profitability growth from a new business strategy, MarketWatch writes.

The company's stock closed at $40.9 on Dec. 17, the highest level in three and a half years, the last time Southwest Airlines stock traded at that level was in July 2022. Southwest shares have gained about 30% over the past month.

The growth driver was the upgrade of the airline's rating from Barclays on December 16. Analyst Brandon Oglenski raised his recommendation from Equal-Weight, which corresponds to a "hold" recommendation, to Overweight ("buy") and raised his target price on the company's shares from $34 to $56, Investing.com reports. The new target implies a potential upside of 37% from the closing price on Dec. 17.

"The airline will benefit from a significant refresh of its commercial strategy as investors' previously pessimistic expectations of potential losses begin to fade," Oglenski explained his position (quoted by CNBC).

Southwest in 2025 began changing its "one cost for everything" business model and began charging for checked baggage - $35 for one seat and $45 for a second, CBS News specifies. In January 2026, the airline will launch assigned seats and extra legroom.

"We expect the carrier to show significant improvement in relative revenue performance, particularly in early 2026," Oglenski wrote, adding that next year is likely to be "significantly more profitable" for Southwest Airlines - as new seating options become available to passengers.

Southwest has had a "low cost strategy" for many years, but not like competitors like United Airlines (UAL) and Delta Air Lines (DAL), which long ago moved to tiered fares and fees for various services (which the companies used as a way to increase profits). Southwest had a free-seat rule for passengers. The company charged minimal extra fees and allowed each passenger to carry two bags of luggage free of charge, but weighing no more than 23 kilograms each. Additional baggage on Southwest flights could not be taken even for money.

Southwest's strategic transformation is aimed at closing the gap with competitors. Barclays analysts noted that Southwest's average passenger fare lagged its competitors by 20-30% through mid-2025, according to Investing.com.

The new model should help the airline catch up with competitors that focus on affluent customers willing to pay more for premium services, MarketWatch notes , specifying that United and Delta's wealthier passengers bring in billions of dollars buying premium services.

Despite Barclays' optimism, the Wall Street consensus remains cautious. According to MarketWatch, of the 13 analysts covering Southwest stock, only 7 of them recommend buying the stock, 14 advise holding and 5 recommend selling. The consensus target price is $37.4, which implies a 10% decline from current levels.

According to aggregators, average target prices vary: Public.com lists $39, StockAnalysis.com lists $37.63The highest target price is $56, the lowest is $24,MarketWatch shows .

Citigroup on April 14, 2025 gave the lowest forecast of $23 for Southwest securities, according to Benzinga.

Southwest faces earnings volatility in 2025 due to commercial changes, weaker travel demand and disruptions during the U.S. government shutdown, Barclays notes. The company informed on Dec. 5 that it lowered its 2025 earnings before interest and taxes (EBIT) forecast to about $500 million from the previous range of $600-800 million due to weaker demand during the government shutdown and higher fuel costs.

However, Southwest announced Dec. 12 plans to open a new crew base at Austin-Bergstrom Airport in March 2026, creating more than 2,000 jobs by mid-2027. The airline is also expanding its international presence through a new transatlantic partnership with Turkish Airlines that will begin in January 2026.

This article was AI-translated and verified by a human editor