Southwest cuts 2026 EPS forecast to $2.60–$2.85 as fuel costs rise
Key Facts
Southwest Airlines cut its 2026 adjusted earnings per share forecast to $2.60–$2.85, according to its earnings release published on October 21, as fuel costs rose. The company had set a higher full-year earnings range of $3.25–$4.25 per share in July, before its latest revision accompanying third-quarter results. It said in its July disclosure: "For full-year 2026, the company expects adjusted earnings per share to be in the range of $3.25 to $4.25." The latest revision puts the upper end of its earnings forecast below the lower end of its previous guidance for the same year. The forecast cut came despite improved quarterly revenue, as the company faced fuel costs above the assumptions underlying its estimates.
Actual fuel cost per gallon in the third quarter was $3.92, according to the company's statement, while its quarterly fuel bill increased by $821 million from the same period a year earlier. Southwest estimated that higher fuel costs weighed on adjusted earnings per share during the quarter by $1.08 per share. This estimate links the increase in fuel expense to its earnings impact, alongside the actual cost the company incurred per gallon. Excluding fuel, unit costs, also excluding special items and profit sharing, rose 3.8% year on year. Cost increases thus extended to the expenses measured by this metric excluding fuel, alongside the larger burden the energy bill placed on quarterly results.
On the operating front, Southwest reported operating revenue of $8.4 billion in the third quarter of 2026, according to its earnings statement. Revenue rose 21.2% from the same quarter a year earlier, alongside growth in the revenue the company generates per unit of available capacity. Revenue per available seat mile grew 21.6% year on year, exceeding the company's previous guidance for the metric. Unit revenue growth outpaced total operating revenue growth during the period, and also exceeded the rate of increase in unit costs excluding fuel, special items and profit sharing. However, the guidance beat on unit revenue coincided with a downward revision to full-year earnings as fuel costs rose above the company's assumptions.
In its third-quarter bottom-line results, Southwest reported net income under generally accepted accounting principles of $270 million, alongside adjusted earnings per share of $0.66. Its adjusted operating margin was 5.4% during the period, according to the company, after calculating operating results on the adjusted basis used in its disclosure. These quarterly results fall within the year for which the company reset its earnings range, after its July guidance had assumed higher earnings per share. On its financial position, Southwest ended the quarter with liquidity of $5.6 billion, according to figures in its statement. The liquidity balance at the end of the period provides the financial backdrop to its fourth-quarter outlook, in which the company assumes a higher cost per gallon than the level recorded in the third quarter.
For the fourth quarter of 2026, Southwest expects adjusted earnings per share of between $0.55 and $0.80, according to the new guidance accompanying its earnings announcement. This range encompasses actual third-quarter earnings per share, with its lower end below that level and the upper end of the quarterly estimate above it. The company assumes fuel costs of about $4.55 per gallon during the fourth quarter, based on the fuel price curve as of October 15, 2026. This assumption is above the actual cost per gallon in the previous period, placing its upcoming earnings estimates against a higher level of fuel costs. The new outlook thus combines the quarterly earnings range with the latest energy price assumption the company used when updating its year-end estimates.
Meanwhile, Southwest expects unit revenue growth to continue in the fourth quarter, setting a range of between 19% and 21% compared with the same period a year earlier. This range is below the actual growth rate recorded in the third quarter, when the metric exceeded the company's previous guidance. The unit revenue outlook for the coming quarter accompanies the higher fuel cost assumption and the earnings estimates the company announced for the same period. Southwest scheduled a call to discuss its third-quarter results for October 22, 2026, following publication of the disclosure and updates to its annual and quarterly forecasts. The call is scheduled to begin at 10:00 a.m. Eastern Daylight Time, according to the time announced on the company's investor relations website.