Southwest Airlines lowers annual profit outlook amid fuel costs surge

Overview

• US airline's Q2 operating revenue rose 16% yr/yr but missed analyst expectations

• Adjusted EPS for Q2 beat analyst expectations, driven by margin expansion despite higher fuel costs

• Company updated full-year adjusted EPS guidance to $3.25-$4.25, down from at least $4.00

Outlook

• Southwest Airlines sees Q3 adjusted EPS of $0.50 to $0.75

• Company expects full-year 2026 adjusted EPS of $3.25 to $4.25, below prior guidance

• Southwest expects 2026 capacity growth of about 1.5%, down from prior guidance of 2%

Result Drivers

• MANAGED BUSINESS REVENUES - Co said managed business revenues reached an all-time quarterly record, up 30% yr/yr

• LOYALTY PROGRAM GROWTH - Rapid Rewards enrollments rose 35% yr/yr and tier qualifiers hit a record, driving program to nearly 100 mln members

• COST DISCIPLINE - Operating expenses excluding fuel and special items rose 3.6% yr/yr, below prior guidance

Key Details

Analyst Coverage

• The current average analyst rating on the shares is "hold" and the breakdown of recommendations is 11 "strong buy" or "buy", 11 "hold" and 4 "sell" or "strong sell"

• The average consensus recommendation for the airlines peer group is "buy"

• Wall Street's median 12-month price target for Southwest Airlines Co is $53.00, about 8.9% above its July 21 closing price of $48.69

• The stock recently traded at 12 times the next 12-month earnings vs. a P/E of 9 three months ago

Reuters Recommended Reads

• July 21 - Alaska Air Q2 swings to loss on fuel cost spike, offsetting revenue gains

• July 20 - Ryanair's Q1 profit falls 34% on higher fuel costs, lower fares

• July 22 - Cathay Pacific flags stronger first-half profit on travel, cargo demand

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(This story was created using Reuters automation and AI based on LSEG and company data. It was checked and edited by a Reuters journalist prior to publication.)