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Southwest Airlines has spent the past year and a half tearing up its own playbook. For a company that built its identity on being different from every other airline, that is a big deal.Now Wall Street is starting to agree the bet is paying off.Morgan Stanley just gave Southwest Airlines (LUV) a fresh look, and the note that came out of it raises a question for anyone holding the stock or thinking about buying it. Is this the start of a turnaround, or just a sugar rush from lower jet fuel and a weaker competitor going out of business?Why Southwest changed its playbook in the first placeFor most of its history, Southwest Airlines ran one product, one way. Open seating. No first class. No bag fees. It worked for decades and built a fiercely loyal customer base. But that loyalty had a limit. Southwest CEO Bob Jordan said at Bernstein’s 42nd Annual Strategic Decisions Conference on May 28 that internal research found 80% of customers wanted assigned seating, and 88% of people who refused to fly Southwest cited that single reason. Related: Southwest’s big quarter comes with a catchFamilies, in particular, disliked not being able to guarantee seats next to their kids.So Southwest flipped the switch. Overnight, on Jan. 27, it rolled out assigned seating, new boarding groups, bag fees, and extra legroom options all at once. Jordan told the Bernstein audience that Southwest led the industry in on-time performance and had the fewest cancellations on that very first day, calling the execution better than he expected.”And the first day of operation, we led the industry in on-time performance, and we led the industry in the lowest number of cancels,” Jordan stated. “So we beat the industry on the day we changed everything about how the company operates.”The early payoff has been real. Jordan said business revenue climbed 25% year over year in March, a trend that held through April and May. Rapid Rewards enrollments jumped 37% in the first quarter, and satisfaction scores for elite tier customers topped 90%.What Morgan Stanley’s new take on Southwest actually saysMorgan Stanley (MS) analyst Ravi Shanker and his team visited Southwest’s Dallas headquarters, meeting with Chief Financial Officer Tom Doxey and investor relations lead Danielle Collins, according to a Morgan Stanley research note dated June 30. The bank kept its overweight rating and set a price target of $60, up from a prior target, with shares closing at $50.25 on July 2.Morgan Stanley’s team came away convinced the airline has, in the analysts’ words, gotten its momentum back. The firm pointed out that the share of passengers paying extra for add-ons such as better seats has jumped from under 20% before the changes to 60% now, and Morgan Stanley sees no sign that number has topped out. More Airlines:Another low-cost airline leaves 6 cities, refunds availableDelta Air Lines cuts two flights forever, refunds availableSpirit Airlines won’t be coming back, and that costs flyers moneyEarly worries that the new fees would push customers away have flipped into the opposite problem for competitors: Southwest appears to be gaining corporate travel share instead of losing it.The bank also flagged that Southwest has quietly pulled back at secondary hub airports, including Chicago O’Hare and Washington Dulles, while pouring capacity into stronger markets such as Orlando, Las Vegas, San Diego, and Austin. Southwest’s overlap with bankrupt rival Spirit Airlines dropped from about 30% to 15% by the time Spirit exited the market, a shift Morgan Stanley views as a tailwind for pricing.Looking ahead, Morgan Stanley’s analysts want to see whether Southwest can restore its full-year guidance and its former target of a 10% operating margin, which management told the bank it is actively discussing if conditions remain stable. The firm’s price target implies Southwest trading at roughly 15 times normalized earnings, in line with legacy carriers Delta Air Lines and United Airlines, whose stocks already trade at that premium multiple.

Morgan Stanley is bullish on Southwest Airlines stock.Bloomberg/Getty Images

Breaking down Southwest’s numbersHere’s how Southwest performed in Q1 of 2026.Revenue for the quarter ended in March hit $7.25 billion, up nearly 13% from a year earlier. Operating profit swung from a loss of $223 million a year ago to a $330 million profit, pushing the operating margin to 4.6% from negative 3.5%. Net income came in at $227 million versus a $149 million loss last year, and EBITDA more than quadrupled to $728 million.Operating cash flow reached $1.42 billion for the quarter, well above every one of the prior four quarters. Total cash fell sharply to $3.33 billion from $8.13 billion a year earlier, mostly because Southwest has been aggressively buying back stock, about $1.25 billion worth in the latest quarter alone, and paying down debt. Shareholder equity dropped to $6.88 billion from $9.37 billion for the same reason. None of that signals distress. Rather, it reflects a company returning excess cash it built up during the pandemic, exactly as Jordan described on the Bernstein call.Total debt ticked up slightly, and the current portion of long-term debt rose to $851 million, worth watching but not alarming, given the cash generation trend.Put together, Southwest looks like a company whose core operations are genuinely healthier than a year ago, even if its cash cushion is thinner by design. That is a very different story from an airline papering over weak fundamentals with financial engineering.Is LUV stock undervalued?Analysts tracking LUV stock forecast the company will end 2030 with free cash flow of $2.91 billion, compared with an outflow of $831 million in 2025, according to Tikr.com data. If Southwest Airlines stock is priced at 15x forward FCF, it could almost double over the next four years if we account for dividend reinvestments. Out of the 15 analysts covering LUV stock, seven recommend “buy,” six recommend “hold,” and two recommend “sell.”The average Southwest Airlines stock price target is $50.83, marginally higher than the current trading price. Related: Southwest Airlines’ CEO makes startling admission

Breakfast dining chain Denny’s continues to reduce its restaurant footprint as some of its underperforming franchisees close locations amid weaker customer traffic and higher operating costs.Fewer customer visits and lower sales can lead to underperforming restaurants, which was the case with iconic breakfast diner chain Denny’s, which closed another troubled location at the corner of Rosecrans and Jarvis Street in the Point Loma area of San Diego, according to KFMB-TV.The closing follows at least three other shutdowns and a franchisee bankruptcy filing this year, after the chain closed 150 Denny’s locations in 2025.

Denny’s closed 150 locations from 2024 through 2025 and continues closing restaurants.Shutterstock

Denny’s closes San Diego locationDiners trying to enter the Point Loma Denny’s on June 22 were met by a big red professionally made sign that seemed to have been produced days ahead of time for the closing that read: “Thank you, Rosecrans. We’re moving down the street!” according to KFMB.The sign proclaimed: “The Legacy Breakfast. Enjoy breakfast on us. Saturday, June 20. Come in for a flyer.”Another hand-written sign in ink outside the front door read, “Closed. Visit Denny’s at 3920 West Point Loma Blvd.”Restaurant property advertised for-lease The 1601 Rosecrans Denny’s location was advertised for-lease by Strategic Real Estate Inc. in early June while the restaurant was still operating, according to SanDiegoVille.The Point Loma Denny’s opened in 1966 at a time when the area was rapidly growing, along with nearby military installations, the fishing fleet, and expanding tourism. The location was a favorite of Navy personnel, San Diego International Airport travelers, late-night diners, college students, and families seeking breakfast all day long, SanDiegoVille reported.Denny’s traces its roots to the founding of Danny’s Donuts in Lakewood, Calif., in 1953, which later became Danny’s Coffee Shop and finally Denny’s in 1959.Chain sold to private equityDenny’s Corporation sold the company to a group led by private equity firm TriArtisan Capital Advisors LLC, alternative asset investor Treville Capital Group, and one of Denny’s largest franchisees, Yadav Enterprises Inc., for about $620 million in an all-cash transaction, that closed on Jan. 16, 2026.The company became a privately-held corporation at the close of the sale. It operated 1,459 global restaurants, consisting of 1,397 franchised and licensed restaurants and 62 company-operated locations, according to the company’s last quarterly report ending Sept. 24, 2025.The San Diego restaurant is not the only Denny’s location to close this year. The restaurant chain closed locations in Grand Rapids, Mich., and in Kalamazoo, Mich., in February 2026, WOOD-TV 8 reported.Franchisee owner of the locations, Denn-Ohio, which owned 10 Denny’s units, filed for Chapter 11 bankruptcy in 2023.Also, a Denny’s franchise in Midland, Texas, closed its restaurant in early January 2026, according to Mashed.Franchisee filed for bankruptcyDenny’s restaurant franchisee DBJ US Corp. filed for Chapter 11 bankruptcy protection on Jan. 27 to restructure its financial obligations.The Miami Beach, Fla.-based operator of seven Denny’s restaurants in South Florida filed its petition on Jan. 27 in the U.S. Bankruptcy Court for the Southern District of Florida but did not indicate a specific reason for filing its case and did not say whether it would close any locations.Among the causes for underperforming restaurants has been a decrease in diner visits, as 45% of restaurant owners claim customer traffic declined between May 2025 and May 2026, while only 29% claimed traffic rose in that period, according to the National Restaurant Association’s Industry Tracking survey released on June 29.It was the 15th time in the last 16 months that restaurant owners reported a net decline in customer traffic.The declining traffic observed by the National Restaurant Association over the last year also affects same-store sales, as 33% of restaurant owners reported a decline in same-store sales it the same period, according to the survey. About 50% of restaurant owners, however, reported an increase in same-store sales in the same period, which was slightly higher than the 48% reporting an increase in the period ending April 2026.The remaining 27% of restaurant owners reported no change in the period ending in May.Labor costs have become prohibitive for running a 24-hour diner operation, such as Denny’s, according to TheStreet advisor and RTMNexus CEO Dominick Miserandino.“You can’t run 24-hour operations on 2026 labor costs when food prices are up 34%. The all-day breakfast used to be a superpower. Now, with 9% of full-service spots at risk of closing this year, it’s a liability,” Miserandino told TheStreet’s Daniel Kline.Denny’s closings in 2026:Denny’s, 1601 Rosecrans, San Diego, closed June 2026. Source: KFMB-TV.Denny’s, 3127 Plainfield Ave. in Grand Rapids, Mich., closed February 2026. Source: WOOD-TV.Denny’s, 3817 Cork St. in Kalamazoo, Mich., closed February 2026. Source: WOOD-TV.Denny’s, 3701 W. Wall St., in Midland, Texas, closed January 2026. Source: Mashed.Related: Popular fried chicken chain franchisee closes 39 locations

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