Southwest Airlines Co. reported second quarter 2026 financial results, delivering record operating revenues of $8.432 billion, a 16.46% increase year-over-year, though this figure missed the analyst consensus estimate of $8.584 billion. The carrier achieved significant earnings growth, driven by broad demand strength and cost discipline, even as fuel expenses surged nearly $900 million year-over-year. The company posted net income of $233 million, or $0.47 diluted EPS, while adjusted net income reached $465 million, or $0.94 adjusted EPS, significantly beating the consensus estimate of $0.51 by 84.31%.

Q2 2026 Financial Performance

The following table summarizes key Q2 2026 financial metrics versus analyst estimates:

"Second quarter results demonstrate the earnings power of our business. We delivered results well ahead of consensus expectations despite nearly $900 million of additional fuel expense year-over-year," said Bob Jordan, Southwest Airlines President & Chief Executive Officer.

Revenue and Cost Highlights

Revenue per available seat mile (RASM) rose 16.2% year-over-year, while adjusted RASM increased 20.1%, exceeding prior guidance. Passenger revenue grew 16.9% year-over-year to $7,745 million, with the average passenger fare rising 20.9% to $225.61. Managed business revenues reached an all-time quarterly record, increasing 30% year-over-year. The Rapid Rewards loyalty program reached nearly 100 million members, with new enrollments increasing 35% year-over-year, and Chase co-branded credit card acquisitions accelerated 28% year-over-year.

On the cost side, total operating expenses increased 16.1% year-over-year to $8.1 billion. Aircraft fuel and related taxes surged 67.0% to $2,215 million, with fuel cost per gallon at $3.92, below prior assumptions of $4.10 to $4.15 per gallon. CASM-X (operating expenses per available seat mile, excluding fuel, special items, and profit sharing) increased 3.4% year-over-year, below prior guidance. Operating margin came in at 3.4%, up 0.3 points year-over-year, while adjusted operating margin reached 6.7%, up 3.3 points year-over-year.

The quarter also included a $285 million adjustment for the reversal of a portion of breakage revenue recognized between 2022 and 2025, related to non-expiring flight credits. This accounting adjustment was treated as a special item and excluded from adjusted results.

Guidance and Outlook

For the third quarter 2026, Southwest Airlines guided adjusted EPS in the range of $0.50 to $0.75, missing analyst estimates of 82 cents per share. The company expects Q3 RASM to increase between 17.5% and 19.5% year-over-year, which includes a headwind from lapping the 2025 implementation of bag fees and other initiatives. Q3 CASM-X is expected to increase between 3.5% and 4.0% year-over-year, including an expected 1.1 point headwind from the removal of six seats from the Boeing 737-700 fleet to enable extra legroom seating. Third quarter fuel cost per gallon is assumed to be between $3.70 and $3.75, based on the forward curve as of July 17, 2026.

The following table summarizes Q3 2026 and full-year 2026 guidance:

For the full year 2026, Southwest maintained its adjusted EPS outlook of $3.25 to $4.25, topping the analyst estimate of $3.17. This updated range replaces its prior expectation of at least $4.00. Full-year capacity growth is now expected at approximately 1.5%, versus last updated guidance of 2%. Net capital spending is expected toward the low end of, or below, the $3.0 billion to $3.5 billion range.

"Our focus now turns to unlocking the Company's full earnings potential by continuing to optimize our network, product offering, and pricing, while continuing to strengthen financial performance. Even in a volatile fuel environment, we delivered significant earnings growth and margin expansion in the second quarter, and are positioned to do so for the remainder of 2026," Jordan added.

Liquidity, Fleet, and Capital Deployment

Southwest ended the second quarter with $5.3 billion in liquidity, comprising $3.8 billion in cash and cash equivalents and a $1.5 billion revolving credit line. Gross leverage stood at 2.1x. The company holds unencumbered aircraft and other related assets with a net book value of approximately $15.7 billion, and $450 million remains outstanding under its $2.0 billion share repurchase authorization.

During the quarter, Southwest received 13 Boeing 737-8 aircraft and retired 10 aircraft, ending the period with 803 aircraft. Gross capital expenditures were $818 million, driven primarily by aircraft-related spending as well as technology, facilities, and operational investments. The company expects 64 Boeing 737-8 aircraft deliveries and plans to retire approximately 60 aircraft in 2026. Southwest also distributed $88 million in dividends during the quarter.

On the operational front, Southwest completed the rollout of service to all five previously announced new destinations, welcomed Air Premia as its ninth airline partner, and operated its first Starlink-equipped aircraft. The company was also named #1 in Customer Satisfaction among Economy Passengers in the JD Power 2026 North America Airline Satisfaction Study for the fifth consecutive year.

Susquehanna analyst Christopher Stathoulopoulos has maintained a Neutral rating on Southwest Airlines (NYSE: LUV) and increased the price target to $55 from $44. The adjustment reflects a revised valuation outlook for the carrier despite the unchanged stance on the stock.

Rating and Price Target Details

The firm's decision to keep the Neutral rating suggests that the risk-reward profile for Southwest Airlines remains balanced at the new price level. The price target increase to $55 indicates an updated assessment of the company's potential share price performance.