What is an income statement waterfall?

An income statement waterfall is a bar chart that walks from total revenue down to net income, with each step showing how much a cost or tax line removes (or adds). Subtotals — gross profit, operating income, pre-tax income — are anchored to zero so the cascade reconciles exactly to the bottom line.

How much of Southwest Airlines (LUV) revenue becomes net income?

For TTM through Q2 2026, Southwest Airlines turned $30.1B of revenue into $837M of net income — a net margin of 2.8%. The waterfall shows where the rest goes: cost of revenue, operating expenses, non-operating items, and taxes.

What are Southwest Airlines (LUV) gross, operating, and net margins?

For TTM through Q2 2026, Southwest Airlines reported a gross margin of 24.7%, an operating margin of 3.5%, and a net margin of 2.8%. Each subtotal in the waterfall corresponds to one of these margins.

Why does Southwest Airlines (LUV) have such a high (or low) gross margin?

Gross margin (gross profit ÷ revenue) reflects how much of each revenue dollar remains after direct production costs. Capital-light software and platform businesses often show gross margins above 60–80% because their cost of revenue is mainly hosting and support. Hardware, retail, and commodity businesses show lower gross margins because raw materials and manufacturing costs are significant. The waterfall makes this visible at a glance — the size of the "Cost of Revenue" bar relative to Revenue is the gross margin complement.

What is the difference between gross, operating, and net margin?

Gross margin = (Revenue − Cost of Revenue) ÷ Revenue. It measures production efficiency. Operating margin = Operating Income ÷ Revenue. It adds operating expenses (R&D, S&M, G&A) and measures the profitability of core operations. Net margin = Net Income ÷ Revenue. It also includes interest, other income/expense, and taxes, and represents the shareholder take after everything.

Southwest Airlines (LUV) Income Statement Waterfall

Revenue

$30.1B

Gross Margin

+24.7%

Operating Margin

+3.5%

Net Margin

+2.8%

Income statement waterfall for Southwest Airlines (LUV) — TTM through Q2 2026

Net income: $837M

Margin breakdown for Southwest Airlines (LUV) — TTM through Q2 2026

Line item	Amount	Running total
Revenue	$30.1B	$30.1B
Cost of Revenue	-$22.6B	$7.43B
Gross Profit	$7.43B	$7.43B
Operating Expenses	-$6.39B	$1.04B
Operating Income	$1.04B	$1.04B
Other Income / Expense	$26M	$1.07B
Pre-tax Income	$1.07B	$1.07B
Income Tax	-$230M	$837M
Net Income	$837M	$837M

Revenue$30.1B
Cost of Revenue-$22.6B
Gross Profit$7.43B
Operating Expenses-$6.39B
Operating Income$1.04B
Other Income / Expense$26M
Pre-tax Income$1.07B
Income Tax-$230M
Net Income$837M

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