Southwest lowers FY forecast as fuel costs weigh profit

Southwest Airlines (LUV) lowered its FY earnings outlook after higher fuel expenses pressured Q2 profitability, despite strong revenue growth and improved pricing trends. 

The airline now expects 2026 adjusted EPS of $3.25-$4.25 (vs. consensus of $3.23), down from its previous forecast of at least $4.

Its net income increased to $233M, or $0.47/share, while adjusted EPS came in at $0.94, beating analyst estimates by $0.42.

Southwest (LUV) reported record Q2 revenue of $8.43B, up 16% Y/Y. Adjusted operating revenue was $8.7B, up 20.3% Y/Y, driven by higher fares, new revenue initiatives including checked-bag fees and assigned seating, and growth in corporate travel and loyalty program revenue.

Adjusted unit revenue increased about 20% Y/Y, while average fares rose 21% Y/Y.

However, higher fuel costs weighed on margins. Q2 fuel expenses increased by about $889M Y/Y as fuel prices remained elevated amid tighter crude supplies linked to Middle East tensions. Actual fuel costs were $3.92/gallon, below Southwest’s previous estimate of $4.10-$4.15/gallon.

For Q3, Southwest (LUV) expects adjusted EPS of $0.50-$0.75, below Wall Street expectations of $0.87. The airline also reduced its 2026 capacity growth forecast to about 1.5% from 2%, as it focuses on improving revenue from existing flights rather than expanding capacity.

“Our focus now turns to unlocking the Company's full earnings potential by continuing to optimize our network, product offering, and pricing, while continuing to strengthen financial performance. Even in a volatile fuel environment, we delivered significant earnings growth and margin expansion in the second quarter, and are positioned to do so for the remainder of 2026,” said Bob Jordan, CEO. 

The stock price dropped about 1.4% on Wednesday after market hours of trading.

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