Southwest Airlines Reports Q1 Profit as Fuel Clouds Outlook

‍DALLAS — Southwest Airlines (WN) reported first-quarter 2026 net income of US$227 million, or US$0.45 per diluted share, on US$7.2 billion in operating revenue, a first-quarter record. The airline said operating margin improved to 4.6%, up 8.1 points year over year, as new commercial initiatives helped lift unit revenue and profitability.

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Southwest reported record first-quarter passenger revenue of US$6.6 billion. Revenue per available seat mile (RASM) increased 11.2% with capacity growth of 1.5%. Approximately 60% of customers upgraded from the base product, compared to 20% in 2025, indicating early success of the product segmentation strategy. Managed business revenue achieved record performance, rising 25% in March and 16% for the quarter.

Fuel costs present a significant challenge

Fuel costs were the primary challenge this quarter. The average fuel price was US$2.73 per gallon, exceeding prior guidance of US$2.40 per gallon, increasing expenses by US$164 million and reducing earnings per share by approximately US$0.22.

For the second quarter, Southwest projects adjusted EPS of US$0.35 to US$0.65, assuming fuel prices between US$4.10 and US$4.15 per gallon. The airline did not update its full-year adjusted EPS target of US$4.00, citing macroeconomic uncertainty and the need for lower fuel prices or stronger revenue to meet it.

Ongoing commercial progress

Southwest highlighted several initiatives demonstrating progress in its business transformation. The airline successfully launched assigned seating and extra-legroom seating on January 27, maintaining strong operational performance.

Rapid Rewards enrollments increased by 37%, and tier-status earners rose by 62%. Southwest also plans to begin deploying Starlink Wi-Fi this summer, with at least 300 aircraft equipped by the end of 2026.

Capacity and network adjustments

Southwest will suspend operations at Chicago O’Hare (ORD) and Washington Dulles (IAD) in June, reallocating capacity to higher-performing markets. The airline now expects full-year capacity growth of approximately 2%, at the lower end of its previous 2%-3% forecast. It still plans to take delivery of 66 Boeing 737-8 aircraft and retire about 60 aircraft in 2026.

Key takeaways

Southwest’s restructuring is now evident in its results. Record revenue, increased customer upgrades, stronger demand from managed businesses, and improved margins indicate that the new product strategy is effective.

However, rising fuel costs continue to challenge the reliability of full-year forecasts. According to Reuters, the airline’s second-quarter earnings guidance fell short of expectations, leading to a decline in its share price after the announcement.