Southwest Cuts 2026 Earnings Forecast as Jet Fuel Costs Climb

Southwest has sharply reduced its 2026 earnings outlook as higher jet fuel prices pressure costs. The cut comes alongside record quarterly revenue and a substantial increase in net income, leaving the airline balancing stronger operating results against a tougher fuel bill. That combination makes the update harder to read than a simple warning about costs: Southwest is bringing in more revenue and earning more, yet it expects less profit per share for the year.

The carrier began the year forecasting adjusted earnings per share of $4. After the second quarter, it widened its range to $3.25–$4.25. On Wednesday, Southwest set a new forecast of $2.60–$2.85, citing fuel-related headwinds that may intensify in the fourth quarter. The range is a signal of uncertainty as well as lower expectations. A forecast can shift when one of an airline’s largest operating expenses moves sharply, even if demand and other parts of the business remain healthy.

Here’s the thing: a strong quarter doesn’t guarantee a strong full-year result when costs are changing this quickly. Earnings per share also gives investors and analysts a different view from headline revenue. Revenue shows the scale of sales; earnings reflect what remains after expenses, including fuel. Southwest’s revision puts that gap at the center of the story.

Fuel costs outpace earlier assumptions

Southwest’s third-quarter fuel cost averaged $3.92 per gallon, above its previous estimate of $3.70–$3.75. For the fourth quarter, the airline is using an estimate of about $4.55 per gallon, based on the forward price curve on Oct. 15. That is a substantial change in the cost assumption over a short stretch of the outlook, and it helps explain why the company has lowered its earnings range despite reporting strong revenue.

Fuel is a particularly difficult cost for airlines to manage because it can move quickly and affects the expense of operating flights across the network. Airlines can adjust schedules, fares, and other parts of the business, but those changes don’t necessarily offset a sudden increase at the pump. The effect depends on how long prices stay elevated, how much of the added expense can be reflected in fares, and whether customers continue to book at those prices. The source figures don’t establish how Southwest will respond on each of those fronts.

Oil prices reached a five-month high this week amid conflict involving the U.S. and Iran over the Strait of Hormuz, alongside Houthi attacks on oil and natural gas infrastructure in neighboring Saudi Arabia. Those developments give the price rise a geopolitical backdrop, though the information provided doesn’t quantify how much each event contributed to Southwest’s fuel costs. The company’s forecast, by contrast, offers a direct indication of the price assumption it is using for the coming quarter.

That distinction matters. Market events can help explain why energy prices are moving, but the airline’s earnings depend on the actual fuel expense it faces and the revenue it can generate against it. A forecast based on a forward price curve is an estimate tied to market conditions on a specific date. It isn’t a promise that prices will hold there. The fourth quarter could therefore bring a different cost picture if the market changes.

Record revenue offers a counterweight

Southwest reported third-quarter operating revenue of $8.4 billion and net income of $270 million, compared with $54 million in the same quarter of 2025. Unit revenue rose 21.6%, setting another company record. These results show that the airline’s performance wasn’t defined by fuel costs alone: customers generated more revenue per unit of capacity, and the company reported much higher net income than in the year-earlier quarter.

Still, those gains don’t settle the question raised by the lower annual forecast. Third-quarter results describe a completed period, while the updated earnings outlook incorporates expectations about future costs. The two can coexist. An airline can post a record in one operating measure and still expect fuel to take a larger share of what it earns in the next quarter.

The airline said consumer demand and margins remain strong despite rising fuel costs. That strength is a useful buffer, but the revised forecast shows how quickly fuel prices can reshape the year’s earnings picture. Demand matters because fuller flights and stronger pricing can support revenue, while margins indicate how much of that revenue survives expenses. Yet neither measure removes the exposure to a higher fuel bill.

This is more significant than it looks: record revenue can make a company appear insulated from pressure, but it doesn’t by itself show whether each additional dollar of sales is keeping pace with costs. If you’re working in this space, the tension to watch is between unit revenue and the fuel assumption, rather than treating either one as a complete account of performance. (And this is the part most people overlook: the forecast change can matter even when the latest quarter looks strong.)

What the fourth quarter will test

For the fourth quarter, the key pressure point is whether demand and margins can hold up as Southwest’s assumed fuel cost rises to about $4.55 per gallon. If they do, they could help absorb some of the added expense. If they weaken, the airline would have less room to offset it through revenue. That’s the basic test in the revised outlook, although the source doesn’t provide a specific threshold for how much strength would be enough.

There’s also a timing issue. The third-quarter fuel average of $3.92 per gallon is already above the airline’s earlier estimate, while the fourth-quarter figure is a forward-looking assumption. That progression suggests why the company is reassessing the year as new costs come into view. But one quarter’s estimate shouldn’t be treated as a settled trend: the forecast depends on prices and operating conditions that can change.

And yet, the strong revenue and net income figures shouldn’t be brushed aside. They show that the business entered this pressure with meaningful operating strength. The revised earnings range shows the limits of that cushion. For now, Southwest’s outlook tells a two-part story: customers are supporting record revenue, while fuel is making that performance more expensive to deliver.

Not a clean win.