Southwest Airlines has lowered its annual profit forecast for 2026 as rising jet fuel prices threaten to offset gains from higher ticket prices and a major overhaul of its business, despite reporting record revenue in the third quarter.
The Dallas-based carrier now expects adjusted earnings of $2.60 to $2.85 per share for the year, down from its previous forecast of $3.25 to $4.25 per share. The midpoint of the revised range is below analysts’ average estimate of $2.85 per share. Southwest shares rose 1% in extended trading.
Although the airline’s revenue has improved, the gains have been accompanied by a sharp increase in operating costs. Southwest reported third-quarter revenue of $8.4 billion, its highest quarterly total on record. The airline’s average passenger fare reached $231.69 in the quarter, an increase of nearly 27% from the same period a year earlier.
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The company’s adjusted earnings reached 66 cents per share, beating analysts’ forecast of 58 cents and rising from 11 cents a year earlier. Meanwhile, Southwest’s fuel bill rose by $821 million year over year. The airline expects jet fuel prices to climb further in the final three months of the year, averaging $4.55 per gallon.
“With the transformation complete, our efforts have shifted to optimizing the business,” CEO Bob Jordan said in a statement.
Southwest has been changing its traditional business model to encourage passengers to pay more for travel. In September, Southwest Airlines Co. announced the debut of its lounge service at four U.S. airports, partnering with Chase and drawing on the experience of Chase’s Sapphire Reserve Lounge network.
The airline has faced several challenges and significant changes over the past few years. In 2024, Elliott Investment Management acquired a $1.9 billion stake in Southwest, seeking to improve its market performance through leadership changes. That same year, Southwest ended its 50-year tradition of open-seat boarding, a practice that had become part of its brand identity.
In 2025, the airline ended its free checked-baggage policy, which it had offered for about 60 years and promoted through the slogan “Bags Fly Free.” Southwest now charges passengers to check their first and second bags.
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“Demand remained strong as we lapped last year’s bag fee and other commercial initiatives, reinforcing our belief that the earnings power we’ve built is durable, even with significantly higher fuel costs,” Jordan added.
Southwest reported net income of $270 million for the third quarter, up from $54 million in the same period a year earlier. The airline plans to increase flight capacity by 3% to 4% in the fourth quarter.
Rising fuel costs have been driven in part by geopolitical tensions linked to the U.S.-Iran war in the Middle East, adding uncertainty to the aviation industry. Other major U.S. airlines, including Delta Air Lines, have indicated that carriers may need to limit flight growth next year to sustain higher fares.