Southwest Airlines cuts 2026 profit forecast as rising fuel costs squeeze earnings

# Southwest Cuts 2026 Profit Outlook Despite Record Revenue as Fuel Costs Surge

Southwest Airlines has lowered its annual profit forecast for 2026 as rising jet fuel prices threaten to offset gains from higher ticket prices and the company’s sweeping business transformation, even after reporting record third-quarter revenue.

The Dallas-based carrier now expects adjusted earnings of **$2.60 to $2.85 per share** for the year, down from its previous forecast of **$3.25 to $4.25 per share**. The revised outlook’s midpoint falls below analysts’ average expectation of **$2.85 per share**, although Southwest’s stock still rose about **1% in extended trading** after the announcement.

The airline reported **$8.4 billion in third-quarter revenue**, the highest quarterly revenue in its history. Strong passenger demand and higher ticket prices helped lift earnings, with the average fare climbing to **$231.69**, nearly **27% higher** than the same period a year ago.

Southwest also delivered stronger-than-expected quarterly earnings, reporting **66 cents per share**, comfortably ahead of analysts’ forecast of **58 cents** and significantly higher than **11 cents** recorded a year earlier.

However, those gains were accompanied by a sharp rise in operating expenses, particularly fuel costs. The airline’s fuel bill increased by **$821 million** compared with last year, and management expects jet fuel prices to average around **$4.55 per gallon** during the final quarter of the year.

“With the transformation complete, our efforts have shifted to optimizing the business,” CEO **Bob Jordan** said while discussing the company’s next phase of strategy.

Over the past few years, Southwest has made some of the biggest changes in its history to increase revenue and attract higher-paying travelers. In September, the airline introduced its first airport lounge service at four U.S. airports through a partnership with **Chase**, leveraging the experience of the **Sapphire Reserve Lounge** network.

The carrier has also undergone broader structural changes following pressure from activist investor **Elliott Investment Management**, which acquired a **$1.9 billion stake** in the company in 2024 and pushed for improvements in performance and leadership.

That same year, Southwest abandoned its iconic **50-year open-seating policy**, ending one of the airline’s most recognizable traditions.

In 2025, it made another historic change by eliminating its long-standing **“Bags Fly Free”** policy, introducing fees for first and second checked bags after roughly six decades of offering complimentary baggage.

Jordan said customer demand has remained resilient despite those changes, suggesting travelers continue choosing Southwest even as the airline adopts more traditional revenue-generating practices.

“Demand remained strong as we lapped last year’s bag fee and other commercial initiatives, reinforcing our belief that the earnings power we’ve built is durable, even with significantly higher fuel costs,” he said.

The stronger demand helped push quarterly net income to **$270 million**, compared with **$54 million** during the same quarter last year, highlighting improved profitability despite mounting expenses.

Looking ahead, Southwest plans to expand capacity by **3% to 4%** during the fourth quarter, reflecting continued confidence in travel demand even as costs remain elevated.

The broader airline industry is also grappling with higher fuel expenses, driven partly by geopolitical tensions linked to the **U.S.-Iran conflict** in the Middle East. Those developments have increased uncertainty for carriers that rely heavily on stable fuel prices to protect profit margins.

Other major U.S. airlines, including **Delta Air Lines**, have similarly indicated that slowing capacity growth next year may be necessary to preserve higher fares and maintain profitability.

Southwest’s latest results illustrate the mixed picture facing airlines today. The company has successfully increased revenue through pricing power and sweeping business changes, but soaring fuel costs continue to threaten those gains.

As the airline enters the final months of the year, investors will be watching whether strong travel demand and its revamped business model can continue offsetting one of the industry’s biggest and most unpredictable expenses—jet fuel.