Southwest Airlines Co. plunged after the carrier said it expects economic turmoil to wipe out as much as $1 billion of its annual pre-tax profit this year, and offered shareholders a much-reduced outlook for the balance of 2025.

Earnings before interest and taxes for the year will be $600 million to $800 million, Southwest said in a statement on July 23, which also included second-quarter results that fell short of analyst expectations.

The carrier originally expected $1.7 billion in pre-tax profit at the start of 2025.

Southwest is one of a few companies so far to put a price on the fallout from President Donald Trump’s efforts to reset global trade, inflation and economic uncertainty that caused travel demand to collapse early this year. Most carriers pulled financial guidance in April, saying it was impossible to forecast demand.

Domestic leisure travel — Southwest’s bread and butter — stabilized in the second quarter, “and we already see signs that demand is coming back in volumes,” chief executive officer Bob Jordan said in an interview on July 24. Business travel remains down, largely on cutbacks in spending by state and federal governments, he said. 

“My only caution is I’ve been in this business a long time and it’s hard to read a few weeks into a trend,” Jordan said. “I don’t have any less optimism than anybody else, I’m just always cautious.”

Rival American Airlines Group Inc., which also is highly dependent on the U.S. domestic market, reinstated its annual earnings guidance on July 24 in a lower range than expected. 

Southwest Air fell 11% to $33.45 as of 2:08 p.m. July 23 New York time, its largest drop since April 10. The stock is down about 1% this year, compared with the S&P Supercomposite Airlines Index’s roughly 10% decline. 

The carrier offered a more cautious outlook than larger rivals United Airlines Holdings Inc. and Delta Air Lines Inc. The airlines said earlier this month that travel in the U.S. has picked up after being hammered at the start of 2025. Trump’s dizzying tariff campaign, inflation and disruptions at some key airports rattled business and consumer confidence and cratered demand earlier in the year.

United and Delta have extensive global networks and premium seating that Southwest lacks, allowing rivals to tap into markets where demand has remained stronger. Delta cited improved corporate travel and an uptick in consumer trips later in the year, while United said it may beat its 2025 earnings targets on the recovery in demand.

Southwest is in the middle of rolling out an extensive makeover plan that breaks from a one-size-fits-all business model that set it apart from rivals for more than five decades. Premium fares with more leg room, assigned seats and a new boarding process will debut next year. The carrier also furloughed workers for the first time in its history earlier in 2025. 

Southwest’s business overhaul and leadership shakeup followed a pressure campaign by Elliott Investment Management, one of its biggest shareholders.

The airline began charging for checked bags in May, and said on July 23 that results have exceeded expectations, with no negative effect on flight operations. 

Southwest said it expects $350 million in earnings before interest and taxes this year from checked bag fees that began on May 28. That will increase to $1 billion over the course of a full year, the carrier said.

It also plans to start selling assigned seats July 29 for flights beginning January 27.

Southwest had to offer additional fare discounts after disappointing results from its new basic economy offering, with fewer customers than expected completing a purchase after considering the fare, the carrier said. That cut second quarter revenue from each seat flown per mile by nearly one-half percentage point before the airline could implement a fix, and will reduce the measure this quarter by one percentage point. 

That measure, known as unit revenue, will be in a range of up 2% to down 2% in the third quarter, while analysts were expecting growth of 1.7%.

The airline said it’s shifting its capital allocation framework from a cash target to a liquidity target of $4.5 billion, including $3 billion cash and a credit revolver of $1.5 billion. The shift is intended to help the carrier maintain an investment grade credit rating, chief financial officer Tom Doxey told analysts on a call after the company reported results.

Southwest also said its board of directors approved a new $2 billion share repurchase program, expected to be completed over a period of as long as two years.

Southwest reported adjusted earnings of 43 cents per share in the second quarter, compared to the 53 cents per share analysts estimated. Its second quarter revenue was $7.24 billion, slightly less than the $7.3 billion analysts expected.