Southwest cuts 2026 forecast despite record revenue
Southwest reported record third quarter revenue of $8.4bn and widened its adjusted operating margin 4.8 points to 5.4 per cent. It still cut full-year guidance to $2.60–$2.85 a share as fuel nears $4.55 a gallon.
Southwest Airlines cut its full-year forecast to adjusted earnings of $2.60–$2.85 a share on October 21, down from $3.25–$4.25 in July and an earlier target of at least $4.00, even as it reported record third quarter revenue of $8.4bn, up 21.2 per cent, and widened its adjusted operating margin by 4.8 percentage points to 5.4 per cent.
Adjusted earnings of $0.66 a share were near the top of the company's $0.50–$0.75 forecast, while revenue per available seat mile, the standard measure of unit revenue, rose 21.6 per cent to a record on capacity that fell 0.4 per cent, ahead of guidance of 17.5–19.5 per cent.
Those gains reflect the overhaul of Southwest's business model, with assigned seating in place since January 27 alongside new fare bundles and extra-legroom seats, and chief executive Bob Jordan said "customers are responding to the enhanced Southwest offering". They came despite fuel at $3.92 a gallon, against $2.40 a year earlier, which added $821mn to costs and took $1.08 off adjusted earnings per share.
The lower full-year range follows from the fourth quarter, for which Southwest expects adjusted earnings of $0.55–$0.80 a share and unit revenue growth of 19–21 per cent, with fuel at about $4.55 a gallon. That assumption sits below United's $4.80 and American's $4.70 and above the $4.25 that Delta Air Lines expects with the help of its refinery.
Southwest still expects a fourth quarter profit without the premium long-haul business that supports United and Delta, whereas American now expects a loss for the year. Its main risk is cost, with unit costs excluding fuel forecast to rise 4–4.5 per cent in the quarter, about one point of which comes from removing six seats from its 737-700s to make room for extra legroom.
The balance sheet gives Southwest more room than most of its rivals, with liquidity of $5.6bn, gross leverage of 1.9 times and $450mn left of its $2bn share buyback authorisation.
What to watch: whether fourth quarter unit revenue reaches the 19–21 per cent range, and the multi-year financial targets Southwest will set out at its capital markets day in New York on March 2 2027.
