By Rajesh Kumar Singh and Nandan Mandayam
Chicago, Oct 21 (Reuters) - Southwest Airlines sharply cut its annual profit forecast on Wednesday, as surging fuel costs overshadowed gains from higher airfares and a business overhaul.
The Dallas-based carrier expects adjusted earnings of $2.60 to $2.85 per share in 2026, down from its earlier forecast of $3.25 to $4.25. The midpoint of the new range is below analysts' average estimate of $2.85 per share, according to data compiled by LSEG.
Southwest also
forecast fourth-quarter earnings below Wall Street expectations, underscoring the challenge facing US airlines as rising fuel costs eat into revenue from sharply higher airfares.
The carrier, once known for its free checked bags and open seating, has been overhauling its business to attract higher-spending travelers and generate more revenue through new products and fees.
Southwest's results offer an early test of those efforts. The airline is collecting substantially more revenue even as it carries fewer travelers.
The fuel shock, however, is making it harder to gauge how much of those gains will translate into profit.
Southwest's average passenger fare jumped nearly 27% in the third quarter, helping lift revenue to a third-quarter record of $8.4 billion. Southwest also reported higher adjusted operating margin despite sharply higher fuel costs.
"With the transformation complete, our efforts have shifted to optimizing the business," CEO Bob Jordan said in a statement, adding that demand remained strong in the fourth quarter.
Southwest's fuel bill rose $821 million from a year earlier, and the carrier expects jet fuel prices to increase further in the final three months of the year.
The company reported third-quarter adjusted earnings of 66 cents per share, above analysts' expectations of 58 cents and up from 11 cents a year earlier.
HIGHER FARES, FUEL PRESSURE
Southwest's outlook provides further evidence that higher airfares have not fully insulated US airlines from the fuel shock stemming from the Iran war.
Delta Air Lines has warned that airlines may need to further restrain flight growth next year to sustain higher fares, while United Airlines expects elevated fuel costs throughout 2027, complicating efforts to improve profit margins.
Southwest plans to increase capacity by 3% to 4% in the fourth quarter, after slightly reducing flying in the September quarter.
It will outline its longer-term financial targets at an investor event in March.
The carrier will discuss its financial results with analysts and investors on Thursday morning.
(Reporting by Rajesh Kumar Singh in Chicago and Nandan Mandayam in Bengaluru; Editing by Diti Pujara and Rod Nickel)
