Southwest Airlines lowers 2026 profit floor as fuel costs blunt pricing gains

Southwest Airlines reported its strongest first quarter in company history for Q1 2026, swinging to a net income of $227 million from a $149 million net loss in the same period last year. Total operating revenues rose 12.8% to $7.25 billion, driven by record revenue per available seat mile (RASM) and increased adoption of premium products, validating the airline's transformation plan launched 18 months prior.

The airline's operational overhaul, including the implementation of assigned seating and extra legroom options, saw approximately 60% of customers opt for upgrades, significantly boosting RASM. Managed business revenue also grew, and Southwest expanded its global network through a new partnership with All Nippon Airways.

Despite these positive developments, Southwest's outlook is clouded by escalating jet fuel costs. The airline paid $2.73 per gallon in Q1, exceeding its guidance and adding $164 million in unbudgeted expenses. Projections for Q2 2026 indicate a further sharp increase in fuel costs, estimated between $4.10 and $4.15 per gallon, a nearly 50% sequential rise.

This surge in fuel expenses, compounded by geopolitical events such as the closure of the Strait of Hormuz which sent WTI crude oil prices to a 12-month high of $104.69 per barrel, has led Southwest to lower its 2026 profit forecast. Jet fuel costs have reportedly risen 106% in the past month. The airline's decision to terminate its fuel hedging program in early 2025 has left it fully exposed to volatile spot prices.