Southwest Posts Record Q3 Revenue Despite Higher Fuel Costs

DALLAS — Southwest Airlines (WN) reported a third-quarter revenue record and higher profit despite rising fuel costs. The carrier also reduced its full-year capacity growth forecast.

The Dallas-based airline reported net income of US$270m for the quarter ended September 30, 2026, up from US$54m a year earlier. Operating revenue rose 21.2% to US$8.4bn, and operating margin reached 4.5%, an increase of four percentage points. Southwest released the results on October 21.

Revenue growth came despite a 0.4% decline in capacity, measured in available seat miles. Revenue per available seat mile increased 21.6%, showing that the airline generated more revenue from each unit of capacity rather than from added capacity.

Southwest's commercial changes include assigned seating and new fare bundles. The airline's assigned-seating policy applies to travel from January 27, 2026, placing the third-quarter results after that change took effect.

Fleet Renewal, Limited Growth

Southwest received 20 Boeing 737-8 aircraft during the quarter and removed 20 aircraft from its fleet: 17 Boeing 737-700s and three Boeing 737-800s sold during the period. It ended September with 803 aircraft. The matching additions and removals left the fleet count unchanged over the quarter.

For 2026, the airline expects 67 deliveries across the Boeing 737-8 and 737-7 variants and approximately 60 retirements. The release does not break down the expected deliveries by variant.

Southwest lowered its full-year capacity growth forecast to approximately 1.2%, from 1.5%. It nevertheless expects fourth-quarter capacity to grow 3% to 4% year over year.

Fuel Costs Weigh on Margins

Average fuel cost reached US$3.92 per gallon, above Southwest's earlier assumption of US$3.70 to US$3.75. Fuel expense rose US$821m from the third quarter of 2025.

The next quarter brings a higher fuel assumption: approximately US$4.55 per gallon, based on the forward fuel curve as of October 15. That is a planning assumption, rather than a price the airline has already paid for the quarter.

Cabin changes also carry a cost. Southwest expects the removal of six seats from its Boeing 737-700s to accommodate extra-legroom seating to add one percentage point to fourth-quarter growth in unit costs excluding fuel, special items and profit sharing. It forecasts a 4% to 4.5% increase in that measure.

Lounges and Connectivity Ahead

Southwest plans to welcome the first guests to its Southwest Icon Lounge network in 2027. It also expects to complete fleetwide installation of Starlink satellite connectivity in fall 2027.

Other commercial initiatives include expanded Rapid Rewards benefits, airline partnerships with TAP Air Portugal (TP) and LOT Polish Airlines (LO), corporate booking enhancements through Southwest Business, and flight shopping through ChatGPT.