Southwest Airlines delivered a stark warning to investors Friday, cutting its full-year 2025 earnings forecast by 40% as the historic 43-day government shutdown decimated holiday travel demand and triggered widespread industry disruption.

The company said it now expects its full-year earnings before interest and taxes to be about $500 million, compared with its previous forecast of $600 million to $800 million, representing one of the most dramatic profit revisions in the airline’s recent history.

Government Shutdown Creates Perfect Storm

A 43-day government shutdown, the longest in U.S. history, disrupted flight operations nationwide, forcing thousands of air traffic controllers and other aviation staff to work without pay. The Federal Aviation Administration ordered flight reductions at 40 major airports because of staffing shortages.

Southwest attributed this substantial cut in its profit outlook to dual pressures, explicitly citing lower expected earnings because of lower revenue during the shutdown, mixed with higher fuel prices. This combination of reduced consumer spending and increased input costs compressed margins dramatically.

Industry-Wide Impact on Airlines

Southwest’s forecast revision reflects broader damage across the aviation sector. Competing airline Delta disclosed that the shutdown alone cost it approximately $200 million in fourth-quarter pre-tax profit. When combined with unexpected winter weather impacts, these twin crises forced Wall Street to slash airline profit estimates industry-wide.

Shares of Southwest were down 2.3% in premarket trading following the announcement, underscoring investor concerns about the airline’s near-term financial performance.

Operational Chaos and Flight Cuts

The government shutdown forced air traffic controllers to work without pay and triggered 10 percent flight reductions at 40 major U.S. airports, creating a cascade of operational challenges that extended far beyond the shutdown period itself.

The increased pressure and personnel shortages created immediate safety concerns and operational bottlenecks across the nation’s hubs. To manage the escalating crisis, the Federal Aviation Administration issued a mandate requiring airlines to reduce their schedules and cancel flights.

Broader Economic Pressures

The earnings cut comes amid a challenging period for Southwest, which has been grappling with multiple headwinds throughout 2025. Southwest Airlines revealed plans to cut its flight capacity by approximately 1.5% in the third and fourth quarters of 2025, focusing on low-demand, off-peak routes. The decision comes as domestic leisure travel, a cornerstone of Southwest’s business model, has shown significant weakness.

CEO Bob Jordan described the current U.S. airline industry as experiencing a “recession” in domestic leisure travel, with demand dropping sharply since January. “The first quarter fell off about three full points, and the second quarter has fallen off about six full points compared to what we thought,” Jordan told Yahoo Finance.

Financial Performance Under Pressure

The airline reported a $149 million net loss in Q1 2025, an improvement from the $231 million loss in Q1 2024, but still reflective of financial strain. Revenue for the quarter rose 1.6% to $6.4 billion, yet costs, driven by volatile jet fuel prices, wage inflation, and tariff-related supply chain issues, are outpacing gains.

Strategic Transformation Continues

Despite the financial challenges, Southwest continues implementing major strategic changes. The airline has accelerated cost-cutting measures, targeting $370 million in savings for 2025 and over $1 billion in run-rate savings by 2027. This includes a 15% reduction in corporate jobs (approximately 1,750 roles) implemented in February 2025.

Southwest is also introducing revenue-generating initiatives, such as bag fees starting May 28, 2025, expiring flight credits, and premium seating with extra legroom as part of its broader transformation strategy.

Industry-Wide Guidance Uncertainty

Southwest’s forecast cut reflects broader uncertainty across the airline sector. Delta Air Lines and Frontier Airlines have scrapped their 2025 forecasts entirely, while United Airlines issued two different projections, calling the U.S. economy “impossible” to predict. Alaska Air Group also withdrew its profit forecast, underscoring a sector-wide retreat from optimism.

Recovery Signs Emerge

Despite the severe operational and revenue challenges, carriers confirmed that the damage was contained to the period of the actual closure. Southwest, in a securities filing, confirmed that bookings have now returned to previous expectations.

“In the last month or so, we have seen the beginning of an inflection back,” Jordan told CNBC. “It’s just the macro uncertainty I think that drove that, but the good sign is we’re seeing positivity now”.

Looking Forward

Southwest expects fourth quarter 2025 unit revenues to be in the range of up 1 percent to 3 percent, compared with fourth quarter 2024 unit revenues, and expects to deliver an all-time quarterly record revenue performance in the fourth quarter.

The 40% earnings forecast cut represents a sobering reality check for Southwest and the broader airline industry, highlighting how external disruptions can quickly derail even the most carefully laid financial plans. As the industry navigates continued economic uncertainty and operational challenges, Southwest’s experience serves as a cautionary tale about the vulnerability of airline profits to forces beyond their control.