Southwest Airlines cuts profit forecast as fuel costs overshadow turnaround gains

Dallas-based airline Southwest announced on Wednesday that it has slashed its annual profit forecast, as soaring fuel costs have obscured the benefits of higher airfares and a business transformation. The company now anticipates adjusted earnings of $2.60 to $2.85 per share in 2026, a significant drop from its previous forecast of $3.25 to $4.25. This revised midpoint estimate is below the average expectation of $2.85 per share held by analysts, according to LSEG data.

In addition to the lower profit forecast, Southwest also projected fourth-quarter earnings that fall short of Wall Street's projections. The airline, which is known for its free checked bags and open seating policies, has been reworking its business model to attract higher-spending passengers and generate revenue through new products and fees. Despite these efforts, the fuel crisis is making it difficult to determine how much of the revenue growth will translate into actual profits.

The airline's average passenger fare rose by nearly 27% in the third quarter, helping revenue hit a third-quarter record of $8.4 billion. Southwest also reported higher adjusted operating margins despite the sharp increase in fuel costs. CEO Bob Jordan said in a statement that post-transformation, the focus has shifted to optimizing the business, with demand remaining strong in the fourth quarter.

The rise in Southwest's fuel bill to $821 million from the previous year and the expectation of further increases in jet fuel prices by the year's end have exacerbated the challenge. The company reported third-quarter adjusted earnings of 66 cents per share, surpassing analyst expectations of 58 cents and exceeding the 11 cents earned a year ago.

The company's outlook highlights the ongoing impact of fuel costs on US airlines, even with higher airfares. Delta Air Lines has cautioned that airlines may need to further curb flight growth next year to maintain higher fares, while United Airlines anticipates high fuel costs throughout 2027, complicating profit margin improvements.

Southwest plans to increase its capacity by 3% to 4% in the fourth quarter, following a slight reduction in flying during the September quarter. The airline will disclose its long-term financial targets at an investor event in March, and will provide additional updates on its financial results to analysts and investors on Thursday morning.