Southwest (NYSE: LUV) jumps on record revenue as margins widen

What happened

Southwest Airlines Co. (NYSE: LUV) said third-quarter net income rose to $270 million as revenue reached $8.4 billion. Adjusted net income was $328 million, or $0.66 a share. Operating revenue increased 21.2% from a year earlier.

The airline said unit revenue rose 21.6% to a record, operating margin reached 4.5%, and adjusted operating margin reached 5.4%. Southwest also returned $176 million to shareholders through dividends.

Fuel costs increased by $821 million year over year. Southwest said fourth-quarter fuel cost per gallon is expected to be about $4.55. It ended the quarter with $5.6 billion in liquidity, including $3.6 billion in cash and cash equivalents and a $2.0 billion revolving credit line. The company said unencumbered aircraft and other related assets had a net book value of about $15.8 billion.

Southwest guided fourth-quarter adjusted EPS to $0.55 to $0.80 and full-year 2026 adjusted EPS to $2.60 to $2.85. It expects fourth-quarter RASM to rise 19% to 21% and CASM-X to rise 4.0% to 4.5%.

Key numbers

Metric	Latest	Change	Source
Operating revenues	$8.42 billion	from $6.95 billion, +21.2%	Third-quarter 2026 results release
Net income	$270 million	from $54 million, +$216 million	Third-quarter 2026 results release
Adjusted net income	$328 million	from $58 million, +$270 million	Third-quarter 2026 results release
Operating margin	4.5%	from 0.5%, +4.0 percentage points	Third-quarter 2026 results release
Adjusted operating margin	5.4%	from 0.6%, +4.8 percentage points	Third-quarter 2026 results release

Read more: Southwest Airlines (LUV) stock analysis and investment case

Why it matters

The quarter shows Southwest can still lift revenue and margins. That matters for the margin-rebuild story. OptimistFi's case is that the business is still recovering, and this filing supports that with record revenue and wider margins.

One comparison stands out. Adjusted operating margin was 0.9 percentage points above the reported 4.5% margin. That shows how much of the quarter still depended on special items. The filing also said third-quarter gain on sale was $214 million, including $96 million from retiring aircraft and engine sales.

It included $118 million from sale-leaseback transactions. That matters because fuel still weighed on the quarter, and Southwest expects full-year growth of approximately 1.2%. The company guided fourth-quarter revenue and cost outlook as RASM up 19% to 21% and CASM-X up 4.0% to 4.5%.

Stock perps: every US stock that trades as a perpetual future, by leverage, live

What's next

Southwest will discuss third-quarter results on a conference call at 10:00 a.m. Eastern Time on October 22, 2026. It also plans a Capital Markets Day in New York City on March 2, 2027.

The company said first guests at the Southwest Icon Lounge network are expected in 2027, and fleet-wide Starlink installation is expected to be complete in fall 2027. A stronger case would show those updates supporting margin growth. A weaker read would show costs or special items pulling results back.

More from OptimistFi

• LUV stock: the Southwest Airlines thesis, its status and the next test to watch
• Stock research on every company OptimistFi covers

From OptimistFi Perps