Southwest Airlines has further room to run due to new seating options and bag fees, according to UBS. The bank upgraded the airline stock to buy from neutral. Analyst Atul Maheswari also hiked his 12-month price target to $73 from $51, which signals 43% upside from Friday's close. Shares of Southwest Airlines have surged 69% over the last 12 months and 24% this year. LUV 1Y mountain LUV 1Y chart Maheswari said he sees more upside to the airline's previously highlighted targets for extra legroom and other assigned seating initiatives. "LUV's revamped cabin configuration implies ~28% ELR seats & another ~22% preferred seats of the total cabin, on average. In our base case, just 40% paid load factor on ELR seats & 70% on preferred seats, can contribute $1.7bn in additional EBIT or ~$2.70 in EPS by FY'27 (above LUV's previous $1.5bn target for '27)," he wrote. Bag fees also present a sizeable opportunity for Southwest Airlines, the analyst added. If 15% to 25% of passengers check a bag each at $35 per bag, this could translate to an additional $1.25 to $2.15 in earnings per share. "These alone drive the majority of our estimated EPS growth from less than $1 in FY'25 to $6+ for FY'27. We think the co. will incorporate this upside when it provides the higher-end of its FY'26 outlook range vs. currently "at least $4.00" (LUV expects to provide upper-end of its FY range when it reports 1Q'26, if not earlier). This should act as a positive catalyst, in our view," the analyst wrote. Southwest could also see upside from higher corporate travel share and any macroeconomic rebound, which management has not priced into its current guidance. Separately, changes to loyalty revenue recognition and an improved credit card agreement could also lift revenue per available seat mile.
