Southwest Airlines lowers 2026 profit outlook amid surging fuel costs

DALLAS, US: Southwest Airlines has significantly reduced its profit forecast for 2026, becoming the latest major United States carrier to warn that escalating fuel expenses are eroding financial gains. The Dallas-based airline lowered its adjusted earnings guidance on Wednesday, citing a sharp increase in its fuel bill driven by the ongoing conflict in Iran.

The carrier is currently navigating a major business transformation, moving away from its traditional model of free checked bags and open seating to attract premium travellers and introduce new fees. While these structural changes have successfully boosted revenue, the sudden spike in energy costs is testing the resilience of this new strategy. Chief Executive Bob Jordan noted that the company's overhaul is now finished, stating, "With the transformation complete, our efforts have shifted to optimising the business".

For the full year 2026, Southwest now expects adjusted earnings between $2.60 and $2.85 per share, a significant drop from its previous forecast of $3.25 to $4.25. The midpoint of this revised range falls short of the $2.85 per share average estimated by analysts, according to data compiled by LSEG. In the third quarter, the airline's fuel expenses surged by $821 million compared to the previous year, and the company anticipates jet fuel prices to climb further, potentially reaching up to $4.55 per gallon in the current quarter.

Despite these mounting pressures, third-quarter revenue hit a record $8.4 billion, aided by a nearly 27 per cent jump in average passenger fares. The airline is collecting substantially more revenue even as it carries fewer travellers, though the fuel shock makes it harder to gauge how much of those gains will translate into profit. Adjusted earnings for the quarter stood at 66 cents per share, beating the 58 cents expected by analysts and rising from 11 cents a year earlier.

The revised outlook highlights a broader challenge for the US aviation sector, where higher ticket prices have not been sufficient to fully shield carriers from the fuel shock originating from the Iran war. Competitors are facing similar headwinds; Delta Air Lines recently cautioned that airlines might need to limit flight growth next year to maintain elevated fares, while United Airlines projects high fuel costs will persist throughout 2027. This environment complicates efforts across the industry to improve profit margins.

Looking ahead, Southwest plans to expand its flight capacity by 3 to 4 per cent in the fourth quarter, following a slight reduction in flying during the September period. The airline is scheduled to present its long-term financial targets at an investor event in March, while management will discuss the quarterly results with stakeholders on Thursday morning.