Southwest Airlines (LUV) is Reshaping Operations to Unlock Margin Growth

In the second quarter of 2026, Sound Shore Management's investor letter revealed that Southwest Airlines Co. (NYSE:LUV) was a significant contributor to the fund's performance. Despite a difficult industry environment over the past five years, Southwest Airlines Co. (NYSE:LUV) management implemented changes to boost margins, such as offering premium services like increased legroom, preferred seating, and charging for checked bags.

This strategy aimed to better price the airline's product and restore returns to historical standards. The company's estimated earnings power was valued at $6 or more per share, making it a compelling investment for Sound Shore Fund. However, the fund did not include Southwest Airlines Co. (NYSE:LUV) on its list of the 40 Most Popular Stocks Among Hedge Funds, as there were 57 hedge fund portfolios holding the stock at the end of the second quarter, compared to 54 in the previous quarter.

Despite acknowledging Southwest Airlines Co. (NYSE:LUV) as a potential investment, Sound Shore Fund believed that certain AI stocks offered greater upside potential with less downside risk.