Southwest Assigned Seating Boosts 2026 Profit Outlook
Southwest Assigned Seating and new bag fees lift the carrier's 2026 profit outlook and raise unit-revenue expectations, prompting a reprice.
KEY TAKEAWAYS
- Assigned seating replaced 54-year open boarding and launched network-wide across roughly 700 aircraft.
- Company set 2026 adjusted EPS at least $4.00, attributing gains to assigned seating and bag fees.
- Guidance projects RASM growth of at least 9.5% and CASM-X rising about 3.5%, with capacity up 2-3%.
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Southwest Airlines (LUV) ended its 54-year open-seating system and introduced assigned seating across its roughly 700-aircraft network, a change the carrier said supports a much stronger 2026 profit outlook after reporting fourth-quarter and full-year results.
Results and Guidance
Southwest reported fourth-quarter operating revenue of $7.4 billion, up 7.4% year over year, and full-year operating revenue of $28.1 billion. Adjusted net income was $301 million, or $0.58 per share, for the quarter and $512 million, or $0.93 per share, for the full year. Adjusted EBIT for 2025 totaled $574 million.
The company returned $2.9 billion to shareholders in 2025, including $2.6 billion in share repurchases that reduced the share count by about 14%. It also ended its "bags fly free" policy and was recognized as a top U.S. carrier for the year.
Southwest set 2026 adjusted earnings per share (EPS) guidance of at least $4.00, attributing the improvement to a business-model transformation that includes assigned seating, new bag fees, and cost controls. It projected first-quarter adjusted EPS of at least $0.45, with unit revenue per available seat mile (RASM) rising at least 9.5% year over year. Cost per available seat mile excluding fuel and certain items (CASM-X) is expected to increase about 3.5%, while capacity measured in available seat miles (ASMs) will grow 2% to 3% for the year. The outlook factors in the impact of Winter Storm Fern, and management said it will assess early demand for the seating changes within about one month.
Assigned Seating and Fleet Changes
The assigned seating system took effect January 27, 2026, following its announcement on July 21, 2025, and cabin reconfigurations completed in September 2025. Southwest stopped selling open-seating fares on January 25 and operated its final open-seating flight on January 27 on the retro "Desert Gold" jet. The change affects roughly 4,000 daily departures.
Southwest replaced free-choice boarding with a paid seat structure. Basic fares are assigned at check-in toward the rear of the plane. Choice fares allow standard seat selection, Choice Preferred designates front-cabin seats, and Choice Extra offers extra legroom. Boarding is organized into eight groups based on fare and loyalty status: Groups 1 and 2 include extra-legroom seats and top-tier members; Groups 3 to 5 cover mid-tier elites and cardholders; Groups 6 to 8 include basic and standard fares. Extra-legroom rows have a 36-inch pitch and carry fees of $29 to $99, while preferred seats are priced between $15 and $49.
To support the new product, Southwest configured Boeing 737-800s with 175 seats, including about 35 forward premium seats. Boeing MAX 8s use extra-legroom rows to match capacity, and six seats were removed from 737-700s to increase legroom. The company said these 700-series adjustments account for roughly 1.1 percentage points of the projected rise in CASM-X.
Southwest plans to provide additional details on the transformation and early booking trends in its April quarterly update or sooner.
