Southwest Airlines Co. ( LUV ) shares are trading higher in premarket on Tuesday after providing updated financial guidance for the first quarter of 2025 and introduced changes to checked baggage policy.

The updated financial projections show a year-over-year increase of 2% to 4% in operating revenue per available seat mile (RASM) for the first-quarter, down from a prior estimate of 5% to 7%.

This is primarily due to higher-than-expected completion factor, less government travel and a greater impact from the California wildfires than originally estimated.

The airline expects available seat miles (ASMs) to decrease by approximately 2%, which is a slight improvement from the earlier estimate of 2% to 3%.

Fuel costs are now expected to be between $2.35 and $2.45 per gallon, down from the previous range of $2.50 to $2.60.

The company’s updated CASM-X estimate for first-quarter 2025 is an increase of approximately 6%, compared to the previous estimate of 7% to 9%.

These changes reflect lower-than-expected expenses in areas such as salary, wages and maintenance costs, as well as softness in bookings and demand trends due to a weaker macro environment.

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As part of its ongoing strategy, Southwest Airlines ( LUV ) is focused on improving cost efficiency while facing inflationary pressures.

The airline continues to forecast a modest increase in capacity in the second quarter of 2025, of 1% – 2%. The company expects to make scheduled debt repayments of approximately $5 million, with an interest expense of around $45 million for the first quarter.

Southwest ( LUV ) also announced a series of new initiatives designed to boost loyalty and offer more choices for its passengers.

The airline will continue to provide two free checked bags for Rapid Rewards A-List Preferred Members and customers purchasing Business Select fares. A-List Members and certain other passengers will receive one free checked bag.

Customers who do not qualify for free checked bags will need to pay for their first and second checked bags, with weight and size limitations in place. These changes will take effect for flights booked after May 28, 2025.

Additionally, the airline has updated its Rapid Rewards program to offer more points on Business Select fares while reducing points for Wanna Get Away and Wanna Get Away Plus fares.

A new Basic fare will also be available for lower-priced tickets starting May 28, 2025, which will allow for assigned seating and extra legroom options.

Southwest ( LUV ) is also expanding its reach by partnering with online travel agency Expedia Group Inc ( EXPE ) , where customers can now book Southwest ( LUV ) flights.

Price Action: LUV shares traded higher by 8.27% at $30.51 in premarket at last check Tuesday.

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