Here’s What Drives Southwest Airlines Co.’s (LUV) Increased Earnings and ROC

Soumya Eswaran Wed, May 20, 2026 at 8:54 AM EDT 3 min read **

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Sound Shore Management, an investment management firm, has released its investor letter for the first quarter of 2026. A copy of the letter is available to download here. In Q1 2026, the Sound Shore Fund Investor Class (SSHFX) and Institutional Class (SSHVX) declined 3.45% and 3.43%, respectively, compared to the S&P 500’s -4.33% return and the Russell 1000 Value Index’s 2.10%. The letter highlighted the Fund’s 35 years of annualized returns of 10.43% and 10.69% for SSHFX and SSHVX, respectively, as of March 31, 2026, compared to 10.65% and 10.05% returns for the indexes, respectively. Following a strong 2025, the US market faced its most challenging first quarter since 2022, influenced by geopolitical tensions and shifting sector dynamics, highlighted by a notable shift away from leading technology and AI stocks, while the energy sector benefited from a rise in commodity prices. The Fund believes its portfolio is strategically aligned with emerging trends that will generate long-term value for investors. Please review the Strategy’s top five holdings to gain insights into their key selections for 2026.

In its first-quarter 2026 investor letter, Sound Shore Fund highlighted Southwest Airlines Co. (NYSE:LUV). Southwest Airlines Co. (NYSE:LUV) is a leading U.S passenger airline company that provides scheduled air transportation services. On May 19, 2026, Southwest Airlines Co. (NYSE:LUV) closed at $37.35 per share. One-month return of Southwest Airlines Co. (NYSE:LUV) was -5.08%, and its shares gained 17.60% over the past 52 weeks. Southwest Airlines Co. (NYSE:LUV) has a market capitalization of $18.26 billion.

Sound Shore Fund stated the following regarding Southwest Airlines Co. (NYSE:LUV) in its Q1 2026 investor letter:

"Away from technology, concern over higher oil prices rippled through the market. Media and entertainment leader Disney and domestic carrier Southwest Airlines Co.** (NYSE:LUV) both gave back a portion of their prior gains as fears of a protracted war impacted consumer discretionary and travel related names. Both companies have very strong balance sheets and are benefitting from multiyear restructurings that are driving improved earnings and returns on capital. They remain full positions."

Southwest Airlines Co. (LUV) Isn't Doing Well, Says Jim Cramer Southwest Airlines Co. (NYSE:LUV) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 47 hedge fund portfolios held Southwest Airlines Co. (NYSE:LUV) at the end of the fourth quarter, up from 40 in the previous quarter. Southwest Airlines Co. (NYSE:LUV) reported a record operating revenue of $7.2 billion in Q1 2026. While we acknowledge the potential of Southwest Airlines Co. (NYSE:LUV) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

Story Continues In another article, we covered Southwest Airlines Co. (NYSE:LUV) and shared the list of stocks Jim Cramer discussed. In addition, please check out our hedge fund investor letters Q1 2026 page for more investor letters from hedge funds and other leading investors.