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Investing.com -- Jefferies upgraded Southwest Airlines (NYSE:LUV) to Hold from Underperform in a note Tuesday, following meetings with senior management, citing renewed confidence in the carrier’s operational overhaul and profitability initiatives.

Jefferies analysts said they “met with CEO&Vice Chair Bob Jordan and CFO Tom Doxey on our Dallas Bus Tour.” 

One of the key takeaways was that they highlighted $1.8 billion in EBIT initiatives slated for 2025. 

These are said to include $1 billion in revenue management, service cuts, and expanded distribution; $370 million in cost reductions; and $400 million from bag fees, basic fares, and loyalty enhancements.

“Management views these as steps given ongoing evaluation of the product&network in pursuit of the customer,” said Jefferies, which raised its 2025 adjusted operating profit estimate for Southwest to $711 million, more than double the $341 million recorded in 2024.

Southwest’s evolving aircraft layout strategy also drew praise. The new configuration features 46 extra legroom seats—26% of total capacity—optimized to “maximize revenue per square foot” while maintaining scarcity value.

Jefferies pointed to May 28 as the launch date for Southwest’s basic economy fare and baggage fee policy updates, estimating the changes could contribute $400 million in EBIT for 2025. 

The firm noted, “Only 15% purchase it, with opportunity to upsell&raise all fare types.”

Cost controls have also shown progress. “42 of 60 managers beat costs in Q1,” the analysts said, crediting dashboards, performance-based pay, and layoffs that cut duplicity across the organization.

Jefferies maintained confidence in Southwest’s long-term strategy, including its commitment to investment grade and unlocking aircraft order book value. The firm values the stock at 13x 2026 estimated P/E and 5x 2026 EBITDAR, reflecting “growing confidence in realizable initiatives.”

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