Southwest posts profit in Q1 of 2026, signaling time for Elliott exit

Southwest Airlines has made a 180 turn from 2025. In Q1 last year, it had posted a loss, while this year it has returned to profitability. However, the airline has lost part of its soul in the process, and much was done to please investors, particularly one Elliott hedge fund.

In this post:

• Southwest Airlines posts Profits in Q1 of 2026
• Profitability achieved through cost cutting and revenue maximization
• The Elliott-focused stock buyback
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Southwest Airlines posts Profits in Q1 of 2026

The overall figures look very good for Q1 of 2026. The airline increased by 12.8% its operating revenue, reaching a $7.2 billion US dollar level. That boiled down to a net income of $227 million and an operating margin of 4.6% in deposited territory.

For context, operating margin was down 8.1 points in Q1 of 2025 when it was negative 3.5%.

However, in order to achieve these results, some drastic measures have been taken over the past 12 to 18 months. Measures that were pushed forward by the Elliott hedge fund, which invested in the airline looking to increase the value of the carrier to then sell at a profit.

Among the biggest changes applied was the introduction of paid baggage, which was a taboo earlier in Southwest Airlines’ history, and also unassigned seating disappeared. Two features that made Southwest Airlines a unique player in the aviation landscape.

That is why it is reasonable to say that the airline has lost part of its soul in the process of re-achieving profitability.

As you can see clearly from the table above, revenue was not increased by upping the number of passengers carried, but mainly by increasing the average passenger fare.

The actual revenue passengers decreased by 2% in Q1 of 2026 over Q1 of 2025, from 29.9 million to 23.3 million. Load factor flatlined, increasing by 0.2 percentage points, up from 73.9 to 74.1%.

Profitability achieved through cost cutting and revenue maximization

Along with increasing revenue by having passengers pay for their checked bags and other ancillary services Southwest Airlines has also reduced costs where possible by closing bases in airports that it did not see as strategic and profitable.

Among the highest-profile bases that the airline is closing are Chicago O’Hare and Washington Dulles, which are both closing in June 2026. Instead of operating in these larger, more expensive airports, Chicago Southwest Airlines is consolidating in its strongholds of Chicago Midway (MDW) and Washington Reagan Airport (DCA).

Every action taken has been focused on increasing revenue, with 60% of passengers now paying more for the base fare than they were last year, showing that having gambled on premium seating is paying off in terms of revenue.

The change in boarding flow, which privileges status holders, has pushed and propped up rapid rewards enrolment, which has spiked with an increase of 37%.

Southwest is also not growing aggressively as it used to in the past, with capacity growing only by 2%. Also the increase in profitability has balanced out completely the negative effect that cost increases, including fuel cost increases, have had in Q1 of 2026.

The Elliott-focused stock buyback

Now, one thing that sticks out like a red herring in the Southwest Q1 2026 report is this massive stock buyback that took place in the quarter. $1.2 billion were spent in buying back common stock on the market.

Now, that is something that you do to please your investors because a stock buyback of that scale will prop up the stock price. And that created the perfect exit conditions for Elliott Hedge Fund.

Elliott had entered Southwest Airlines as an investment looking to increase the stock price by taking aggressive action, such as the one discussed above, to then sell at a higher price.

The stock buyback created the perfect conditions for Elliott to exit Southwest Airlines as it started selling off its stock just as the effects of the stock buyback started being felt.