TD Cowen turns bullish on Southwest Air as passenger demand strengthens

TD Cowen says that rising passenger demand is forming a favorable earnings backdrop for Southwest Airlines . The investment firm upgraded the Dallas-based carrier to buy from hold. Analyst Tom Fitzgerald also hiked his 12-month price target by 32%, to $66 from $50, implying upside of 30% over the coming year. Shares of Southwest Airlines have surged 23% so far in 2026, and 66% over the past 12 months. LUV 1Y mountain LUV 1Y chart As a catalyst, Fitzgerald cited increasing seat demand against disciplined supply in 2026. “The industry backdrop in 2026 is playing out largely as the bulls hoped, with broad-based demand against rational supply. While we continue to prefer global full-service carriers, the rising industry tide makes it difficult to foresee negative revisions for Southwest this year,” the analyst wrote Friday. Next month, the analyst expects that Southwest management will use their attendance at an investment conference to raise forward earnings guidance. Fitzgerald’s own updated earnings estimate is now about 20% above consensus for 2026 and 30% above consensus for 2027, primarily driven by higher revenue assumptions rather than cost differences. Meanwhile, Southwest management expects about $1 billion of incremental earnings before interest and taxes from seating products, $650 million from baggage fees and some $350 million from cost initiatives this year. “Looking through the EBIT bridge, even a partial recovery of last year’s macro headwinds layered on top of the company’s initiatives implies meaningful upside,” Fitzgerald added. “For now, we believe EPS revisions will remain the primary driver of the shares, with free cash flow execution in 2027 emerging as the key debate. If Southwest can deliver on its > $1bn FCF target and avoid meaningful cardholder churn, we think investor concerns will fade and upside to our estimates will remain in play.”