Southwest Airlines (NYSE:LUV) reported record third-quarter operating revenue of $8.4 billion and said its transformation initiatives contributed across the business, helping offset an $820 million year-over-year fuel-cost headwind.
President and Chief Executive Officer Bob Jordan said the airline generated a 5.4% adjusted operating margin, up 4.8 percentage points from a year earlier, while adjusted earnings per share rose 500% year over year to $0.66. The result exceeded the midpoint of the company’s guidance despite fuel costs being higher than anticipated at the prior earnings call.
Revenue performance exceeds expectations
Chief Commercial Officer Justin Jones said revenue per available seat mile, or RASM, increased 21.6% year over year, above the company’s 17.5% to 19.5% guidance range and representing an all-time high. Southwest also reported record third-quarter passenger revenue and its highest passenger yield in company history.
Passenger fares were about $3 above the company’s forecast, while passenger volumes also exceeded expectations, Jones said. September was particularly strong, producing record RASM and passenger yield despite what would typically be a post-summer moderation in travel demand.
Southwest attributed the performance to constructive pricing, sustained demand, stronger managed-business travel and adoption of newer product offerings. The company has focused capacity on stronger markets including Nashville, Las Vegas, Orlando, Austin and San Diego, while shifting capacity away from lower-performing markets.
The carrier is also pursuing redesigned airport banks, expanded red-eye flying and partnerships intended to bring more travelers into the network. Jones said Southwest’s point-to-point operating structure, combined with a commercially connected network, helped it raise yields and load factors through increased connecting traffic.
Business travel continued to gain momentum. Southwest said 20 of its top 50 corporate booking days in company history occurred during the quarter, while two of the three months set records for unique managed-business travelers flown. Business passenger revenue grew 29% year over year, while business passengers rose about 9% on essentially flat capacity, Jordan said.
Fourth-quarter outlook and cost expectations
Southwest forecast fourth-quarter RASM growth of 19% to 21% year over year, with roughly 65% of fourth-quarter revenue already booked. The company said corporate demand remains healthy and the pricing environment remains constructive.
Chief Financial Officer Tom Doxey said third-quarter CASM-X, or unit costs excluding fuel and certain other items, increased 3.8% year over year as capacity declined 0.4%. For the fourth quarter, Southwest expects CASM-X to rise 4% to 4.5% on capacity growth of 3% to 4%.
Fourth-quarter costs will include the timing of Boeing 737-800 heavy-maintenance events, frontline labor and healthcare costs, expenses associated with on-time performance below the company’s target, and a decision to concentrate advertising spending in the fourth quarter. Doxey said unit-cost growth is expected to moderate from fourth-quarter levels in the first quarter and through 2027.
The airline projected fourth-quarter adjusted earnings per share of $0.55 to $0.80, using an assumed average fuel price of about $4.55 per gallon based on the forward curve as of Oct. 15. Full-year 2026 adjusted earnings per share is now expected to be $2.60 to $2.85.
Southwest ended the quarter with $5.6 billion in liquidity and a gross leverage ratio of 1.9 times. It also replaced its prior $1.5 billion revolving credit facility with a new $2 billion facility maturing in 2031.
Fleet activity and operational priorities
The company generated $285 million in cash proceeds from sales of retiring aircraft and engines during the third quarter and recorded $96 million in associated gains. Sale-leaseback transactions generated an additional $212 million in cash proceeds and $118 million in gains.
Doxey said Southwest updated salvage-value assumptions for parts of its fleet, reducing depreciation expense by slightly more than 10%. The change had some impact in the third quarter and will apply for a full quarter beginning in the fourth quarter.
For 2026, Southwest expects about 67 new aircraft deliveries and 60 retirements, with net capital spending of $2.5 billion to $2.75 billion. Doxey said deliveries and retirements are both expected to increase in 2027, following certification of the Boeing MAX 7.
Chief Operating Officer Andrew Watterson said the airline is seeking to improve on-time performance, particularly in the period between 14 and 45 minutes behind schedule. Southwest plans schedule adjustments beginning in January and process changes in November involving gate-check and flight-closing procedures.
Loyalty, premium products and customer investments
Southwest said it is expanding its Rapid Rewards program beginning Jan. 1 with a new Platinum tier, expanded benefits on the path to status and additional co-brand credit-card engagement opportunities. International loyalty partnerships and partner redemptions are expected to launch next spring, while redemption of points for ancillary purchases, including seat selection, is planned for later in 2027.
The airline expects to complete fleetwide installation of free Starlink Wi-Fi for Rapid Rewards members by this time next year. It also said its first Southwest Icon Lounge locations are under construction in Austin, Baltimore, Honolulu and Nashville, with at least seven more locations planned. Southwest expects to welcome its first lounge guests in the fourth quarter of next year and plans to launch a premium co-brand credit card in 2027.
Jordan said reports that Southwest is close to ordering wide-body aircraft were not correct. He said the airline will continue evaluating products that could attract and retain customers, while emphasizing that any decision will be guided by customer demand rather than a focus on a particular aircraft type or premium product.
Southwest plans to hold a Capital Markets Day in New York on March 2, 2027, where it intends to present a multiyear financial framework and longer-term targets.
About Southwest Airlines (NYSE:LUV)
Southwest Airlines Co is a major U.S. passenger airline headquartered in Dallas, Texas. The company provides scheduled air transportation for leisure and business travelers, with service connecting cities throughout the United States and selected destinations in Mexico, the Caribbean, and Central America.
Southwest is known for its predominantly domestic network and point-to-point operating model. In addition to passenger flights, the company offers ancillary services and air cargo transportation.
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