Sound Shore Management released its investor letter for the second quarter of 2026, highlighting Southwest Airlines as a significant contributor to the fund's results. The firm noted that the airline has navigated a challenging industry environment over the past five years but is now implementing operational changes aimed at increasing margins.
These adjustments include the introduction of premium services such as increased legroom, preferred seating options, and fees for checked bags. According to the letter, these initiatives enable the carrier to price its products more effectively and restore returns to historical levels.
The fund estimated Southwest's earnings power at $6 or more per share, describing the investment as maintaining a compelling position within the portfolio. This assessment comes as the broader market experienced a strong rebound in the quarter, driven largely by performance in artificial intelligence and semiconductor sectors, alongside easing inflation concerns and a stable labor market.
In terms of fund performance, the Sound Shore Fund's Investor Class (SSHFX) and Institutional Class (SSHVX) rose 10.48% and 10.58%, respectively, during the second quarter of 2026. These gains trailed the Russell 1000 Value Index, which returned 13.87%, and the S&P 500, which rose 15.20%.
Over a three-year period, the fund's classes posted annualized gains of 19.41% and 19.66%, outperforming the Russell Value index's 17.79% but underperforming the S&P 500's 20.61%.
Southwest Airlines shares closed at $40.71 on August 24, 2026, reflecting a market capitalization of $19.92 billion. The stock recorded a one-month return of -12.11% but gained 21.86% over the preceding 52 weeks. Data indicates that 57 hedge fund portfolios held the airline at the end of the second quarter, up from 54 in the previous quarter.
