Southwest Airlines Co. (LUV) reported third-quarter 2026 adjusted earnings of 66 cents per share, up 500% year over year and above the Zacks Consensus Estimate of 61 cents by 8.2%.
Record operating revenues increased 21.2% year over year to $8.42 billion, beating the consensus mark of $8.27 billion by 1.9%. Strong demand for enhanced products and higher fares supported the top line despite elevated fuel costs. Revenue per available seat mile, or RASM, jumped 21.6% to an all-time high, while adjusted operating margin expanded 4.8 percentage points to 5.4%.
Southwest Airlines Co. Price, Consensus and EPS Surprise
Southwest Airlines Co. price-consensus-eps-surprise-chart | Southwest Airlines Co. Quote
LUV's Passenger Revenues Drive Record Growth
Passenger revenues increased 22.8% year over year to $7.75 billion, representing approximately 92.1% of total operating revenues. The increase reflected strong demand for Southwest's enhanced offerings and improved pricing.
Freight revenues advanced 14.3% to $48 million, while other operating revenues rose 4.5% to $621 million. Managed business revenues reached a third-quarter record, with 20 of the company's 50 highest managed business booking days occurring during the quarter.
Southwest Airlines Benefits From Higher Fares
Traffic, measured in revenue passenger miles, declined 0.4% year over year to 36.21 billion. Capacity, measured in available seat miles, decreased by the same percentage to 45.39 billion, keeping the consolidated load factor unchanged at 79.8%.
Revenue passengers carried declined 3.2% year over year to 33.5 million. However, average passenger fare surged 26.9% to $231.69, while passenger revenue yield increased 23.3% to 21.41 cents.
Passenger revenue per available seat mile improved 23.3% year over year to 17.08 cents. The strong pricing performance helped offset lower passenger volumes and supported record quarterly revenue generation.
LUV Faces Higher Fuel Expenses Despite Cost Discipline
Total operating expenses increased 16.3% year over year to $8.04 billion. Aircraft fuel and related taxes surged 61.7% to $2.15 billion, representing an $821 million increase from the prior-year quarter.
Average fuel cost increased 63.3% to $3.92 per gallon from $2.4, while fuel consumption declined 1.1%. Higher fuel expenses created a $1.08 per-share headwind to adjusted earnings.
Salaries, wages and benefits increased 10% year over year to $3.54 billion, while landing fees and airport rentals climbed 13.7%. Maintenance expenses rose 1.3% year over year, partially offset by an 8.6% decline in other operating expenses.
Cost per available seat mile excluding fuel, special items and profit sharing increased 3.8% year over year to 12.68 cents, reflecting continued discipline in controllable costs.
Southwest Airlines Sees Significant Margin Expansion
Adjusted operating income surged to $452 million from $42 million a year earlier. On a reported basis, operating income rose to $379 million from $35 million, reflecting revenue growth that outpaced overall expense increases.
Adjusted pretax income climbed to $428 million from $75 million. Adjusted net income increased to $328 million from $58 million in the prior-year quarter.
Reported net income rose to $270 million from $54 million, while diluted earnings increased to 55 cents per share from 10 cents. Adjusted net margin expanded 3.1 percentage points to 3.9%.
LUV Expands Customer Experience and Loyalty Offerings
Southwest Airlines announced plans to introduce its first airport lounges under the Southwest Icon Lounge network, with initial openings expected in 2027.
The airline also unveiled Rapid Rewards enhancements, including a new Platinum tier, additional redemption partners and expanded milestone benefits. Southwest Business introduced Business Priority and new distribution connectivity to improve corporate booking access.
Fleet modernization continued with deliveries of 20 Boeing 737-8 aircraft and the retirement of 20 aircraft. Southwest Airlines ended September with 803 aircraft and continued installing Starlink Wi-Fi, targeting fleet-wide availability in fall 2027.
Southwest Airlines Maintains Strong Liquidity
Operating cash flow totaled $513 million in the third quarter compared with $287 million a year earlier. Capital expenditures reached $1.01 billion, primarily reflecting aircraft, technology and infrastructure investments.
Southwest Airlines ended September with $5.6 billion in available liquidity, including $3.62 billion in cash and cash equivalents. Gross leverage stood at 1.9 times.
The company distributed $176 million in dividends during the quarter and had $450 million remaining under its share repurchase authorization.
LUV Provides Fourth-Quarter and Full-Year Outlook
For fourth-quarter 2026, Southwest Airlines expects adjusted earnings of 55-80 cents per share. The Zacks Consensus Estimate for the fourth quarter is currently pegged at 90 ents per share. Capacity is projected to increase 3-4%, while unit revenues are forecast to grow 19-21% year over year.
Non-fuel unit costs, excluding special items and profit sharing, are expected to rise 4-4.5%. Management assumes fuel costs of approximately $4.55 per gallon.
For full-year 2026, Southwest projects adjusted earnings of $2.60-$2.85 per share and capacity growth of approximately 1.2%. Net capital spending is expected to be between $2.5 billion and $2.75 billion.
Currently, LUV has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Q3 Performance of Other Transportation Companies
Delta Air Lines DAL reported third-quarter 2026 earnings (excluding 57 cents from non-recurring items) of $1.72 per share, missing the Zacks Consensus Estimate of $1.80 by 4.44%. Earnings increased year over year despite sharply higher fuel costs and rising non-fuel expenses.
Adjusted revenues climbed 16% year over year to $17.59 billion but missed the consensus estimate of $17.74 billion by 0.9%. Broad demand strength and healthy yields lifted adjusted total revenue per available seat mile, or TRASM, 15%, while premium and diversified revenue streams continued to expand.
J.B. Hunt Transport Services, Inc. JBHT reported third-quarter 2026 earnings of $1.82 per share, up 3.4% from $1.76 a year ago. The figure beat the Zacks Consensus Estimate of $1.81 by 0.6%.
Operating revenues climbed 20.4% year over year to $3.68 billion and surpassed the consensus mark of $3.56 billion by 3.2%. Stronger pricing, an 8% increase in Intermodal loads and higher brokerage volumes supported growth. However, elevated driver-related expenses, fuel costs and insurance claims pressured profitability.
United Airlines Holdings, Inc. UAL reported third-quarter 2026 adjusted earnings of $2.54 per share, down 8.6% year over year and below the Zacks Consensus Estimate of $2.60 by 2.3%. Higher fuel expenses weighed on profitability despite strong revenue growth.
Operating revenues rose 17.4% to $17.88 billion but missed the consensus mark of $17.91 billion by 0.2%. A 15.9% increase in total revenue per available seat mile or TRASM, supported the top line, driven by strength across premium, loyalty and contracted business revenues.
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Southwest Airlines Co. (LUV): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).