S&P Global Ratings upgraded Southwest Airlines' outlook to stable from negative, citing sustained earnings growth and improved credit metrics. The issuer credit rating was affirmed at BBB, reflecting the airline's strengthened financial position.
The upgrade follows a 400-basis-point improvement in EBITDA margins to 10.2% since Q2 2024, alongside sustained leverage below 1.5x and debt-to-EBITDA near 1x. S&P expects funds from operations to debt to remain above 70%, supported by historically strong performance over the past two years.
Southwest’s financial outlook includes revenue growth of 16%–18% in 2026, driven by passenger revenue estimated at $3.3 billion, excluding ancillary income. Ancillary revenue benefits are expected to total $1.5 billion over five months under the new baggage fee policy. Jet fuel costs are projected to rise to $3.60 per gallon in 2026 from $2.42 in 2025, adding $2.6 billion to total fuel expenses.
Free operating cash flow is forecast at $100 million in 2026 and $580 million in 2027, after accounting for $3.5 billion in gross capital expenditures annually. Asset sales and sale-leasebacks are expected to offset $1.2 billion in 2026 and $850 million in 2027.
The airline’s liquidity position remains robust, with $3.8 billion in cash and cash equivalents, a fully undrawn $2 billion revolving credit facility, and $15.7 billion in unencumbered assets as of Q2.
