DALLAS – October 31, 2026 -- Southwest Airlines (NYSE: LUV) posted record third-quarter operating revenue of $8.4 billion, up 21.2% year-over-year, and widened its operating margin by 4.0 points to 4.5% even as fuel costs rose by $821 million.
Net income was $270 million, or $0.55 diluted EPS. Adjusted net income was $328 million, or $0.66 per share. The adjusted operating margin was 5.4%, up 4.8 points. Fuel cost $3.92 per gallon, against prior assumptions of $3.70 to $3.75, and cut $1.08 from adjusted EPS.
Unit revenue rises 21.6% on 0.4% less capacity
Unit revenue (RASM) set an all-time record and beat prior guidance, while capacity fell 0.4%. The airline also reported its highest passenger yield ever and record third-quarter passenger revenue. Managed business revenue reached a third-quarter record, and 20 of the 50 strongest managed business booking days in company history fell in the quarter.
CEO Bob Jordan said demand held as the airline lapped last year's bag fee and other commercial initiatives, and that "the earnings power we've built is durable, even with significantly higher fuel costs." He added that robust demand has continued into the fourth quarter.
Fourth-quarter RASM guided up 19% to 21% as fuel nears $4.55
Southwest expects fourth-quarter RASM to rise 19% to 21%. Its guidance assumes about $4.55 per gallon for fuel, based on the October 15 forward curve, and that current fare and demand trends stay broadly intact.
Third-quarter operating expenses rose 16.3% to $8.0 billion. Excluding fuel, special items and profit sharing, costs rose 3.4%, and CASM-X increased 3.8%. Fourth-quarter CASM-X is guided up 4.0% to 4.5%, including a 1.0-point headwind from removing six seats from each Boeing 737-700 to add extra-legroom seating.
Southwest trims 2026 capacity growth to 1.2% and ends quarter with 803 aircraft
Full-year capacity growth is now expected at about 1.2%, down from the prior estimate of about 1.5%. The airline received 20 Boeing 737-8 aircraft and retired 20 in the quarter: three 737-800s were sold and 17 737-700s were retired. It ended the period with 803 aircraft. For 2026 it expects 67 deliveries of 737-8 and 737-7 aircraft and about 60 retirements.
Gain on sale totaled $214 million, including $96 million from retiring aircraft and engine sales and $118 million from sale-leaseback transactions. Gross capital expenditures were $1.0 billion. Net capital spending for 2026 is forecast at $2.5 billion to $2.75 billion.
Liquidity reaches $5.6 billion with gross leverage at 1.9x
Liquidity consists of $3.6 billion in cash and a $2.0 billion revolving credit line. Unencumbered aircraft and related assets carry a net book value of about $15.8 billion. Southwest paid $176 million in dividends in the quarter, and $450 million remains under its $2.0 billion share repurchase authorization.
Loyalty, lounges and AI booking expand the commercial offer
Rapid Rewards gains a Platinum tier, a faster path to status through card spend, new Milestone Rewards and new redemption partners. The first Southwest Icon Lounge, the airline's first airport lounge, is expected to welcome guests in 2027. Southwest became the first U.S. airline to offer flight shopping through ChatGPT. For corporate customers, it added Business Priority and NDC connectivity.
TAP Air Portugal and LOT Polish Airlines joined as the tenth and eleventh airline partners. Starlink WiFi installation continues, with the full fleet expected to be complete in fall 2027.
Southwest will present a multi-year financial framework, including its targets and path to reach them, at a Capital Markets Day in New York City on March 2, 2027. The company hosts its earnings call at 10:00 a.m. Eastern on October 22, 2026.