Southwest Airlines (LUV): Valuation Insights After FAA Cuts Lead to Flight Cancellations and Schedule Review

Southwest Airlines (LUV) finds itself in the spotlight following the Federal Aviation Administration’s directive to cut air traffic by 10% at major airports because of an air traffic controller shortage. The move has resulted in immediate flight cancellations and operational adjustments for the airline.

See our latest analysis for Southwest Airlines.

Southwest’s shares climbed 2.98% in the latest session, showing a burst of optimism despite the turbulence caused by the FAA’s recent cutbacks and ongoing government shutdown impacts. While operational disruptions have raised short-term uncertainty, newer partnerships such as the Philippine Airlines deal and leadership additions suggest the airline is laying groundwork for longer-term value. This is reflected in a one-year total shareholder return of 4.43%, even as the five-year total return remains in negative territory. Momentum seems to be building as investors look for signs of a steadier flight path ahead.

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With shares rebounding despite ongoing operational challenges and only a modest discount to analyst price targets, investors now face a key question: is this a true buying opportunity, or has the market already accounted for Southwest's future growth prospects?

Most Popular Narrative: 3.9% Undervalued

Southwest Airlines’ most widely followed valuation narrative sets the fair value at $33.76 per share, compared with a last close of $32.45. That suggests the market lags slightly behind where analysts believe the shares could be heading if their growth assumptions are met.

“Planned introduction of premium and assigned seating, along with basic economy offerings, can enhance revenue yield through differentiated pricing strategies catering to varied consumer preferences. This could potentially boost net margins and overall earnings.”

Read the complete narrative.

Curious what kind of margins Southwest could unlock by shaking up its seating strategy? The narrative hinges on ambitious forecasts for earnings growth and profit expansion, with numbers that might surprise even seasoned airline watchers. Peek under the hood to see which bold projections drive the story behind this fair value.

Result: Fair Value of $33.76 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, risks remain. Potential delays in aircraft deliveries and softer booking trends could both dampen revenue growth and margin recovery.

Story Continues

Find out about the key risks to this Southwest Airlines narrative.

Another View: Price Multiples Suggest Caution

While analyst narratives see a modest upside based on future growth, examining Southwest’s price-to-earnings ratio paints a different picture. The airline trades at 44.3x earnings, well above both the global airline industry average of 8.8x and its peer average of 10.2x, and even above the fair ratio of 27.8x. This sizable gap means investors are paying a significant premium at today’s levels. Does that leave much room for error if expectations fall short?

See what the numbers say about this price — find out in our valuation breakdown.NYSE:LUV PE Ratio as at Nov 2025

Build Your Own Southwest Airlines Narrative

If you have your own take or want to look deeper into the numbers, it's easy to dig in and build your own story from the data in just a few minutes. Do it your way.

A great starting point for your Southwest Airlines research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include LUV.

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