Southwest Cuts 2026 Earnings Outlook After Record Unit Revenues

The Tip Desk · October 25, 2026 · 3 min read

Third-quarter operating revenues hit a third-quarter company record of $8.4 billion as RASM reached 18.55 cents, while full-year adjusted EPS guidance was lowered to $2.60 to $2.85.

Southwest Airlines Co. (LUV) reported third-quarter operating revenues of $8.4 billion, up 21.2% from a year earlier, a pace that accelerated from 16.4% growth in the second quarter.

Unit revenues reached an all-time record of 18.55 cents per available seat mile, up 21.6% year-over-year, faster than the 16.2% increase in the prior quarter. Capacity declined 0.4% to 45.4 billion ASMs. Passenger revenue was a third-quarter record of $7.75 billion, up 22.8%, with passenger yield of 21.41 cents per revenue passenger mile.

Revenue passengers carried fell 3.2% to 33.5 million. Load factor held at 79.8%. President and Chief Executive Officer Bob Jordan said demand remained strong as the airline lapped last year’s bag fee and other commercial initiatives.

Operating margin expanded to 4.5%, up 4.0 points year-over-year, after a 0.3-point year-over-year increase in the second quarter. Adjusted operating margin was 5.4%, up 4.8 points. Net income was $270 million, or $0.55 a share, versus $54 million and $0.10 a year earlier. Adjusted net income was $328 million, or $0.66 adjusted EPS.

Aircraft fuel and related taxes expense was $2.15 billion, up 61.7% year-over-year, an $821 million increase that represented a $1.08 headwind to adjusted EPS. Fuel cost was $3.92 per gallon, above prior assumptions of $3.70 to $3.75. Operating expenses rose 16.3% to $8.0 billion; excluding special items they rose 15.4%. CASM-X increased 3.8% year-over-year.

The airline received 20 Boeing 737-8 aircraft and retired 20 aircraft, ending the quarter with 803 aircraft. Gross capital expenditures were $1.0 billion. Liquidity was $5.6 billion, with gross leverage of 1.9 times. The company paid $176 million in dividends.

Full-year 2026 adjusted EPS guidance was cut to $2.60 to $2.85 from the $3.25 to $4.25 range issued after the second quarter. Full-year capacity growth is now expected at approximately 1.2%, versus last updated guidance of approximately 1.5%.

For the fourth quarter, Southwest forecasts adjusted EPS of $0.55 to $0.80, ASMs up 3% to 4% year-over-year, RASM up 19% to 21%, and CASM-X up 4.0% to 4.5%, including a 1.0-point headwind from removing six seats from Boeing 737-700s to enable extra legroom seating. Fuel is assumed at about $4.55 per gallon based on the forward curve as of October 15, 2026.

The company announced plans to launch the Southwest Icon Lounge network, with the first guests expected in 2027, and enhancements to Rapid Rewards including a new Platinum tier. It also said it became the first U.S. airline to make flight shopping available through ChatGPT, added TAP Air Portugal and LOT Polish Airlines as airline partners, and will host a Capital Markets Day in New York City on March 2, 2027.