Southwest Is Spinning Its New Fees As A Success Story — But The Accounting Shows Credit Cards, Not Bags And Seats

Southwest’s second quarter financial results are being spun as a success of the airline’s transformation – that customers love paying for seats and checked bags, a devalued Rapid Rewards program, and travel credits that now expire. In management’s telling, basic economy restrictions are getting customers to spend more, rather than stay away. According to CEO Bob Jordan, Our business model now benefits from a broader and more diversified set of revenue and commercial levers than at any point in our history. But when you did into the actual accounting, that story falls apart. Southwest’s Revenue Growth Is Just Industry Revenue Growth Southwest’s second quarter GAAP revenue was $8.432 billion, versus $7.244B in the second quarter of 2025. In their telling you can’t really say how much of that is the result of fuel price increases because so much has changed in their business. There’s too many moving pieces, but $1.2 billion additional revenue shows that what they’re doing is working. But all the big airlines are seeing huge increases in revenue, and they haven’t made the same kind of business model changes that Southwest has. The major airlines have all now reported financial results for the second quarter. Revenue is up significantly across the board as follows: United: 16% Delta: 14% American: approximately 16% Peer average: 15.3% So if we assume 15.3% increase in revenue for Southwest just from average industry uplift, we’d expect $8.355 billion in revenue and the excess revenue above that is $77 million which is just noise. It’s Still Messy, With Expiring Travel Credits And More Credit Card Money From Chase Southwest’s adjusted revenue looks better than GAAP revenue. The difference is a $285 million flight credit breakage adjustment. The airline’s travel credits didn’t used to expire. They assumed that 85% of credits would get used, and 15% would expire. They now have data that suggests 12% are expiring. That means expiration wasn’t as beneficial to them, and they had to make an adjustment for it. Basically, they recognized $285 million in the past that had to be backed out and moved forward – they shouldn’t have recognized as much breakage when they changed their rules, recognizing the revenue instead when travel gets redeemed. So if you grant them the adjustment their quarterly revenue was $360 million higher than one would expect just from the overall industry environment. However, that’s mostly accounted for by credit card revenue improvements coming from Chase. They have a full year-over-year effect from their revised credit card deal, reported co-brand acquisitions reported up 28% year-over-year, and increased card spend that’s reported by issuers and airlines across the board. Southwest didn’t disclose the specific amounts. Overall though there’s probably an increase coming from Chase of $250 million ($200 – $300 million). What that means is that any above-baseline increase in revenue is coming from Chase rather than from their flying. Those aren’t entirely separable. People haven’t abandoned the credit card. There’s No Revenue Left To Say Checked Bag Fees, Seat Fees And Basic Economy Are Helping Southwest I considered the possibility that Southwest, doing just as well as other airlines, was really outperforming because the story so far has been about the strength of premium and Southwest isn’t premium. However that really isn’t what we’ve seen at other airlines during the second quarter. At United, premium revenue per seat mile, main cabin revenue per seat mile and basic economy revenue were all up around the same percentage. At Delta, premium ticket revenue was up more than main cabin revenue because of an increase in premium seats and reduction in non-premium ones. So main cabin unit revenue was up double digits – and mor ethan premium unit revenue was. The best thing Southwest can say is that they’ve reverted to industry mean. They were once the darling of investors, earning a profit 47 consecutive years (1973 – 2019) through recessions, oil shocks, and 9/11. They were a growth stock. Now, they’re an airline just like any other and we see industry-average performance. Topics on this page