May 15, 2026

Where Did All the Cash Go and Costly Share Repurchases

The cessation of operations at Spirit Airlines is a stark reminder that consumer preferences can change very quickly and that airlines need to stay one step ahead. Being on top in your segment of the airline business does not guarantee future success, and intense competition from carriers with better products and networks can quickly turn profits to losses. Southwest Airlines spent last year catching up to industry trends, which have unlocked significant value from the business in the form of additional revenue and improved profitability. Operationally, Southwest is now at the top having been named the best U.S. airline for 2025 by the Wall Street Journal. It was a turnaround year, but now we ask “What’s next?” to keep the airline pushing ahead.

The Company has done a lot of hard work catching up to the competition, and those efforts are showing positive results. However, we want to hear from the C-suite about the multi-year plan and strategy. Lessons learned from Spirit’s collapse show that successful airlines need to be at the forefront with their products, network, and technology to meet consumer demands, drive revenue, and realize cost efficiencies in this highly competitive industry. Capital allocation and the use of available cash is another critical factor in funding the future for any business.

In this article, I will give a quick recap of Southwest’s Q1 financial results. I will follow with a deep dive into capital allocation — how Southwest’s large excess cash balance of $15.5 billion at the end of 2021 was lowered by $12.2 billion to $3.3 billion today — moving from a net-cash to a net-debt position. And I’ll conclude with a look at large share repurchases totaling more than $4 billion made by Southwest beginning in late 2024. Capital allocation decisions are critical to the long-term health of any business, especially an airline.

Southwest Airlines Q1 Financial Performance

Activist investor Elliott Investment Management (EIM) publicly entered the picture in mid-2024 and put significant pressure on Southwest Airlines to change its ways. The Company spent last year focusing on a financial turnaround by launching bag fees and preparing for the 2026 rollout of assigned seating, extra leg room, and other enhancements. These changes have had a positive impact as shown in the recent Q1 financial results where Southwest produced the highest net margin of the Big 4 airlines at 3.1% and a net income of $227 million. This was the first Q1 profit for Southwest in seven years when looking at adjusted earnings, going all the way back to Q1 2019 in which it earned $387 million (adjusted).

The most recent quarterly results were driven by significant revenue performance with unit revenues (RASM) up 11.2% and the average passenger fare up 16.6%. These results would have been even better had it not been for $164 million in added higher fuel prices as a result of the war in Iran. These higher fuel prices will put significant pressure on Southwest’s original guidance for $4 in earnings per share for 2026.

Southwest’s Excess Pandemic Cash Balance — Where Did All the Cash Go?

Southwest Airlines used financial leverage to add a significant amount of cash to the balance sheet during the pandemic as an insurance policy to protect the business. It ended 2021 with $15.5 billion in cash and short-term investments. Today, Southwest’s cash and short-term investments total $3.3 billion. So where did the $12.2 billion go?

As shown in Figure 1 (period analyzed: 2022 through Q1 2026), one of the major uses of cash was to cover negative free cash flow over the period of $2.1 billion after accounting for net cash from operations and funding $12.8 billion in Capital Expenditures (CapEx). CapEx are things like airplanes, equipment, facilities, and certain technology-related costs. It is typically a good use of funds, as it is used to buy things that drive revenue, increase efficiency by lowering costs, and supporting business growth.

Another use of funds was for shareholder returns, which totaled $5.4 billion from 2022 through Q1 2026. This included $1.35 billion in dividend payments and $4.05 billion in share repurchases. The $4 billion in share repurchases were all paid beginning in late 2024 — when Elliott Investment Management became publicly involved in the stock.

Next, the Company made payments to reduce long-term debt by $7.8 billion, a good thing. However, they also recently issued a total of $2 billion in new long-term debt, bringing the net retirement of long-term debt to only $5.8 billion from 2022 through today. The new long-term debt was issued in late 2025 and 2026 — around the same period they repurchased $4 billion in stock.

Finally, the Company received additional cash proceeds from sale-leaseback (SLB) transactions, totaling $895 million (36 -800 aircraft), and the sale of property and equipment, totaling $192 million. However, it is important to note that SLB transactions lead to higher operating expenses as aircraft lease payments now need to be made compared to non-cash depreciation expense when aircraft are owned. The annual lease payments for these 36 aircraft are an additional $102 million per year (2–3-year lease terms). Southwest does appear to have significantly limited its planned SLB transactions with $871 million of the $895 million occurring during 2024, only $24 million in 2025, and no activity in 2026.

The significant net use of cash totaled $12.2 billion for the period 2022 through Q1 2026 as the Company worked off the excess cash balance as shown in Figure 1 and explained above.

More on Shareholder Returns — Cost & Value

One area we are monitoring is capital allocation, and more specifically, the use of debt and SLB transactions that were used to help fund shareholder returns. Typically, a business will buy back shares when it doesn’t have anything better to do with the cash — like fund growth, pay employees more, or reduce debt obligations.

We would like to see Southwest utilize free cash flow — cash that is left over after taking cash produced from the business and subtracting capital expenditures (CapEx) — to fund share repurchases. Use of debt adds leverage to the balance sheet, and both debt and SLBs come with added costs. These are not productive ways to raise capital to enable share repurchases in our view.

The presentation in Figure 2 is the same data in Figure 1 reorganized to illustrate how capital has been allocated, assuming share repurchases are the last priority in the capital allocation decision process. Figure 2 shows Southwest’s free cash flow totaled a negative $2.125 billion for the period 2022 through Q1 2026 — meaning there was no free cash flow to allocate to fund share repurchases. The Company used some excess cash, but raised additional cash from debt and SLB proceeds to fund a majority of the $4 billion in share repurchases for the period shown.

Why would Southwest issue $2 billion in new long-term debt while returning $4 billion to shareholders? They have a minimum target goal to carry $3 billion in cash and would not want to go below that level — cash that could be needed during a “rainy day” like an economic downturn. As shown in Figure 2, the $2 billion in new long-term debt, $895 million in proceeds from SLB transactions, and $192 million in proceeds from sale of property and equipment, totaling $3.1 billion, enabled the majority of the $4 billion in share repurchases to maintain the minimum $3 billion cash floor.

As shown in Figure 3, the $2 billion in new long-term debt has some variable rate exposure but based upon today’s rates will cost $96 million per year in additional interest expense.

Southwest will point to the value created from this round of share repurchases. If you look at Figure 4, the Q4 2024 and 2025 share repurchases have created value. However, the Q1 2026 share repurchases have not. The total value of the share repurchases to date is $400 million, but that value is “phantom money,” as it would only be realized if the Company were to reissue these shares today, which they are not. Share repurchases can also lead to financial engineering when evaluating Earnings Per Share where the denominator is lowered as shares are repurchased, making management performance look better even as earnings growth slows.

Adding it all up, the $4.05 billion in share repurchases (Q4 2024–Q1 2026) is now costing the Company $96 million in additional annual interest expense and $102 million per year in additional aircraft rent, equaling $198 million per year in total additional expenses. The new debt adds leverage to the balance sheet, and the additional aircraft rent from the SLBs increases unit costs (CASM). The added leverage could also contribute to putting the Company’s investment grade credit rating at risk if the economy faltered into recession and additional cash was needed — requiring more debt to be issued. At the end of the day, you can’t get the cash back once it is returned to shareholders unless you reissue shares, which is rarely done.

Share repurchases are a bad idea when they can’t be funded by excess cash produced by the business. In 2019, Southwest had a net cash position of $1.4 billion; today, it has a net debt position of $2.1 billion — still great compared to our competitors — but not as good as the airline’s pre-pandemic position. This move from net cash to net debt was $3.5 billion and the share repurchases discussed above were $4 billion. You get the picture. The failure of Spirit Airlines reminds us that anything can happen in this volatile industry, and it’s always good to play it safe when it comes to returning capital.

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Turnaround Takes Hold

Where Did All the Cash Go and Costly Share Repurchases

Southwest Airlines Q1 Financial Performance

Southwest’s Excess Pandemic Cash Balance — Where Did All the Cash Go?

More on Shareholder Returns — Cost & Value