S&P Global Ratings revised Southwest Airlines' credit outlook to stable from negative while maintaining its issuer credit rating at BBB, citing sustained profit improvements and debt reduction. The upgrade reflects the airline’s strengthened financial position, with leverage maintained below 1.5x debt-to-EBITDA and funds from operations to debt sustained above 70%.
The rating agency noted a 400-basis-point improvement in adjusted EBITDA margins to 10.2% since Q2 2024. S&P also highlighted Southwest’s consistent debt-to-EBITDA ratio of around 1x and projected revenue growth of 16% to 18% in 2026, before moderating in 2027. Passenger revenue growth, excluding ancillary income, is estimated at $3.3 billion, supported by the new baggage fee policy implemented in May 2025.
Fuel costs are expected to rise by $2.6 billion in 2026, with jet fuel priced at $3.60 per gallon compared to $2.42 in 2025. The policy change is projected to add $1.5 billion in ancillary revenue over five months of operation. Free operating cash flow is forecast at $100 million in 2026 and $580 million in 2027, while gross capital expenditures are set at $3.5 billion annually for 2026 and 2027, partially offset by $1.2 billion and $850 million in asset sales and sale-leaseback transactions, respectively.
At the end of Q2 2025, Southwest held $3.8 billion in cash and cash equivalents, a $2 billion unused revolving credit facility, and $15.7 billion in unencumbered assets. The airline plans to introduce assigned seating and extra legroom on January 27, 2026, as part of its revenue enhancement strategy.
