01—Abstract
Summary
Summary of the 10-Q filed April 23, 2026. Cited figures are marked; the original filing is the authoritative source.
Southwest Airlines Co. reported first-quarter 2026 operating revenues of $7.2 billiona, a first-quarter record and an increase of $821 million, or 12.8 percent, year over year.
Passenger revenue rose $780 millionb, or 13.4 percent, driven mainly by ancillary revenue from the company's transformational initiatives, including bag fees and assigned and extra legroom seating that began January 27, 2026. Operating income was $330 million, compared with an operating loss of $(223) million in the prior-year quarter, and net income was $227 million, or $0.45 per diluted share, compared with a net loss of $(149) million, or $(0.26) per share. Unit revenue (RASM) was 17.24 cents, up 11.2 percent, while operating expenses per ASM rose 2.6 percent to 16.46 cents, largely due to higher salaries, wages, and benefits and fuel costs.
Fuel was a significant headwind. Aircraft fuel and related taxes expense was $1.4 billionc, or $2.73 per gallon, approximately $164 million higher than the company had forecast. The company discontinued its fuel hedging program and closed its hedge portfolio in 2025, so it is fully exposed to fuel price changes.
The forward curve on April 16, 2026 implied second-quarter 2026 fuel cost of $4.10 to $4.15d per gallon, and the filing notes that impacts could be more significant if prices remain elevated. On the balance sheet, unrestricted cash was $3.3 billion, and the company had a working capital deficit of approximately $6.5 billion, which the filing attributes to the nature of its air traffic liability. Operating cash flow was $1.4 billion, compared with $860 million a year earlier.
Total stockholders' equity fell to $6.9 billion from $8.0 billion at year-end 2025, reflecting $1.25 billion of share repurchases and dividends. During the quarter the company drew $500 million under a new secured term loan and prepaid the $426 million PSP3 Payroll Support Program loan on April 22, 2026.
02—Key points
Key Highlights
- Record first-quarter operating revenues of $7.2 billion, up $821 million, or 12.8 percent, year over year, driven by passenger ancillary revenue.
- Operating income of $330 million versus an operating loss of $(223) million a year earlier; net income of $227 million, or $0.45 per diluted share, versus a net loss of $(149) million.
- Unit revenue (RASM) rose 11.2 percent to 17.24 cents, supported by an 11.5 percent increase in passenger revenue yield per RPM.
- Aircraft fuel and related taxes expense was $1.4 billion ($2.73 per gallon), about $164 million above the company's forecast; the company has no fuel hedges after closing its hedge portfolio in 2025.
- Second-quarter fuel outlook: forward curve implied $4.10 to $4.15 per gallon, with the company expecting to use approximately 555 million gallons.
- Operating cash flow of $1.4 billion; capital expenditures of $630 million; unrestricted cash of $3.3 billion; working capital deficit of approximately $6.5 billion.
- Returned over $1.3 billion to shareholders in the quarter through $1.25 billion of share repurchases and $93 million of dividends paid; 28.4 million shares repurchased during the quarter under the $2.0 billion authorization.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2026filed April 23, 2026Financial Statements
Q1 FY2026 against Q1 FY2025
| Line item | Q1 FY2026Q1 FY2025 | Change |
|---|---|---|
| Revenue | $7.25B$6.43B | +12.8% |
| Operating Income | $330.00M-$223.00M | +248.0% |
| Net Income | $227.00M-$149.00M | +252.3% |
| EPS (Basic) | $0.45$-0.26 | +273.1% |
| EPS (Diluted) | $0.45$-0.26 | +273.1% |
| Shares Outstanding (Basic) | 498.00M584.00M | −14.7% |
| Shares Outstanding (Diluted) | 503.00M584.00M | −13.9% |
05—Questions
Frequently Asked Questions
What drove the improvement in Southwest's profitability this quarter?
Operating revenues rose $821 million, or 12.8 percent, mainly from passenger ancillary revenue tied to the company's transformational initiatives, including bag fees and assigned and extra legroom seating. Passenger ancillary sold separately rose to $715 million from $245 million. These gains outweighed higher salaries, wages, and benefits expense of $195 million and fuel expense of $107 million.
How exposed is Southwest to fuel prices going forward?
Southwest is fully exposed to jet fuel price fluctuations because it terminated its remaining fuel hedging contracts in 2025 and does not intend to add new fuel derivatives. The filing states that a one-cent-per-gallon change in jet fuel prices would affect second-quarter 2026 aircraft fuel expense by $5.6 million. It also notes that the forward curve implied second-quarter 2026 fuel cost of $4.10 to $4.15 per gallon.
How is the company managing its liquidity and capital returns?
The company ended the quarter with $3.3 billion of unrestricted cash and access to a $1.5 billion revolving credit facility expiring in August 2028, with no amounts outstanding. In March 2026 it entered into a $500 million secured term loan maturing March 11, 2029, and it prepaid the $426 million PSP3 Payroll Support loan on April 22, 2026. It repurchased $1.25 billion of stock and paid $93 million in dividends during the quarter, and its 2026 net capital spending outlook is $3.0 billion to $3.5 billion.
What is the status of the Boeing MAX aircraft deliveries?
The filing states that Boeing continues to experience delays in delivering MAX aircraft, and that the FAA has not yet certified the 737-7, for which Southwest expects to be the launch customer. The company received 10 737-8 deliveries in the first quarter of 2026, retired 13 aircraft, and reports firm orders of 617 aircraft through 2031. It notes that the FAA will ultimately determine the timing of the -7 certification and entry into service.
Are there material legal developments investors should know about?
On April 16, 2026, the Fifth Circuit Court of Appeals affirmed dismissal of a breach-of-contract class action over the MAX aircraft, holding that the plaintiffs lacked Article III standing. A shareholder derivative suit over the Bags Fly Free policy change was dismissed with prejudice on March 17, 2026, and the plaintiff filed a notice of appeal on April 15, 2026. A securities class action was dismissed without prejudice on March 31, 2026, with leave to amend by April 24, 2026. The company denies all allegations of wrongdoing in each matter.
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