Southwest earnings guidance for 2026 was cut on October 21 as higher jet fuel costs outweighed some of the benefit from rising fares and revenue. The airline now expects adjusted earnings of $2.60–$2.85 per share, down from its July forecast of $3.25–$4.25, even after third-quarter results exceeded analyst expectations.
Key Takeaways
- Quarterly fuel expense rose by $821 million, putting pressure on the full-year profit outlook.
- Third-quarter adjusted earnings of $0.66 per share exceeded the $0.58 analyst consensus.
- Average fares rose almost 27%, while the number of revenue passengers declined 3.2%.
Table of Contents
- Southwest earnings outlook faces a larger fuel bill
- Quarterly profit and revenue beat expectations
- Higher fares accompany fewer passengers
- Fourth-quarter plans depend on fares and demand holding
- Conclusion
Southwest earnings outlook faces a larger fuel bill
Southwest’s third-quarter results announcement put fuel costs at $3.92 per gallon, above its earlier assumption of $3.70–$3.75. The airline said the $821 million year-over-year increase in quarterly fuel expense represented a $1.08 headwind to adjusted earnings per share.
The pressure was expected to intensify in the fourth quarter. Southwest assumed fuel would cost approximately $4.55 per gallon, based on the forward fuel curve as of October 15, 2026.
That outlook separates the earnings downgrade from a collapse in bookings: management continued to describe demand as strong, while a substantially larger fuel bill reduced the profit expected from those sales.
| Item | Details |
|---|---|
| Fourth-quarter adjusted EPS guidance | $0.55–$0.80. |
| Fourth-quarter unit-revenue guidance | Up 19%–21% year over year. |
| Fourth-quarter capacity guidance | Available seat miles up 3%–4% year over year. |
| Fourth-quarter non-fuel unit-cost guidance | Up 4.0%–4.5%, excluding special items and profit sharing. |
Quarterly profit and revenue beat expectations
For the quarter ended September 30, net income increased to $270 million, or $0.55 per diluted share, from $54 million, or $0.10 per share, a year earlier. Excluding special items, adjusted earnings were $0.66 per share.
Revenue rose 21.2% to $8.42 billion, exceeding the $8.25 billion consensus compiled by LSEG. Adjusted earnings also topped LSEG’s $0.58 estimate.
Profitability improved despite the fuel increase. The adjusted operating margin reached 5.4%, compared with 0.6% a year earlier, as revenue growth outpaced the increase in operating expenses.
Higher fares accompany fewer passengers
Southwest’s average passenger fare reached $231.69, almost 27% above the third quarter of 2025. That figure excludes add-on fees. Revenue passengers carried fell 3.2% to 33.47 million.
The figures show that higher revenue did not depend on carrying more travelers. Unit revenue, measured as operating revenue per available seat mile, increased 21.6%, while capacity declined 0.4%.
Southwest has changed its longstanding business model by introducing checked-bag fees and charging for many seat assignments. Chief Executive Bob Jordan said demand remained strong as the airline passed the anniversary of last year’s bag-fee and other commercial changes, and said robust demand had continued into the fourth quarter.
Fourth-quarter plans depend on fares and demand holding
Southwest’s fourth-quarter forecast combines further unit-revenue growth with an increase in available seats. The guidance assumes the current fare environment and demand trends remain broadly intact, rather than guaranteeing that recent strength will continue.
Non-fuel unit costs are also expected to rise. The forecast includes a one-percentage-point cost headwind from removing six seats from Boeing 737-700 aircraft to provide extra-legroom seating.
Conclusion
Southwest’s stronger quarterly results did not prevent a full-year guidance cut as fuel costs climbed. At the October 21 announcement, the next scheduled update was its October 22 earnings call, offering management an opportunity to explain the revised outlook and fourth-quarter assumptions.
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