Southwest Airlines Co (NYSE:LUV) shares jumped 7% as UBS analysts upgraded the airline to ‘Buy’ from ‘Neutral,’ citing potential earnings upside from the carrier’s planned seating and fee initiatives.
UBS raised its 12-month price target to $73 from $51, implying roughly 43% upside at their time of writing.
The firm said its more constructive stance reflects expectations that Southwest’s Extra Legroom (ELR), assigned seating and checked bag fee initiatives could contribute meaningfully to earnings growth over the next two years.
UBS estimates these efforts could generate roughly $4.25 to $4.50 in incremental earnings per share at full maturity by fiscal 2027. The analysts expect about $2.70 of that contribution to come from ELR and about $1.70 from bag fees in its base scenario.
The analysts believe these initiatives account for most of their projected earnings growth, which rises from less than $1 per share in fiscal 2025 to more than $6 by fiscal 2027.
UBS lifted its EPS forecasts to $5.05 for 2026, up from $4.31, and to $6.07 for 2027, up from $5.12, both about 20% above consensus estimates.
UBS also sees upside potential tied specifically to the ELR rollout. The firm noted Southwest’s updated cabin configuration suggests about 28% of seats will be ELR and another 22% preferred seats.
In the base case, the analysts estimate that just a 40% paid load factor on ELR seats and 70% on preferred seats could generate about $1.7 billion in additional EBIT, or roughly $2.70 in EPS by 2027. “In an upside case, a 10% higher paid load factor can generate $2.9 billion in EBIT or $4.50+ in incremental EPS,” the analysts wrote.
Bag fees represent another potential earnings lever, according to UBS. The firm modeled a scenario in which 15% to 25% of passengers check one bag at $35 per bag, producing approximately $1 billion to $1.5 billion in incremental EBIT, or about $1.25 to $2.15 in EPS at maturity.
UBS added that Southwest could see further upside from increased corporate travel share and any improvement in macroeconomic conditions, noting the company has not built significant macro tailwinds into its current fiscal 2026 outlook.