01—Abstract
Summary
Summary of the 10-Q filed July 23, 2026. Cited figures are marked; the original filing is the authoritative source.
Southwest Airlines Co. reported second-quarter 2026 total operating revenues of $8.43 billiona, up 16.4% from $7.24 billion a year earlier and an all-time quarterly record, while operating income rose to $285 million from $225 million and net income rose to $233 million from $213 million.
Diluted EPS was $0.47b versus $0.39. Results include a $285 million reversal of previously recognized breakage revenue tied to non-expiring flight credits issued July 2022 through December 2025; excluding this and other special items, non-GAAP net income was $465 million and diluted EPS was $0.94. Aircraft fuel and related taxes rose 67.0% to $2.2 billion, or $3.92 per gallon, versus $2.32 a year earlier, partly offset by strong passenger yield growth of 15.4%.
For the first half of 2026, net income was $460 millionc (diluted EPS $0.92) versus $64 million a year earlier, and net cash from operating activities was $1.95 billion versus $1.26 billion. The company repurchased 28,429,822 shares in the first quarter, none in the second quarter, and had about $450 million remaining under its share repurchase authorization at June 30, 2026. Cash and cash equivalents totaled $3.79 billion and total debt-related current maturities rose to $2.16 billion.
Long-term debt, including the $1.5 billiond term loan drawn under a credit agreement entered in March 2026 and upsized in May 2026, was used alongside the prepayment of the $426 million PSP3 Payroll Support note in April 2026. The balance sheet shows a working capital deficit of about $6.8 billion, which the filing attributes mainly to air traffic liability of $8.18 billion.
Net capital spending guidance for 2026 is toward the low end of, or below, the $3.0 to $3.5 billion range. The company is fully exposed to fuel price changes after terminating its fuel hedges in 2025, and a one-cent change in jet fuel price would affect third-quarter 2026 fuel expense by $5.3 million.
02—Key points
Key Highlights
- Record second-quarter operating revenue of $8.43 billion, up 16.4% year over year, with passenger revenue up 16.9% to $7.75 billion.
- Operating income of $285 million (GAAP) versus $225 million; non-GAAP operating income excluding special items of $585 million versus $245 million.
- Net income of $233 million, or $0.47 diluted EPS, versus $213 million and $0.39; non-GAAP diluted EPS was $0.94 versus $0.43.
- A $285 million breakage revenue reversal in Q2 2026 reduced net income by $185 million, or $0.37 per diluted share, and is treated as a special item.
- Aircraft fuel and related taxes rose 67.0% to $2.2 billion ($3.92 per gallon vs. $2.32), the largest driver of higher operating expenses.
- Cash from operations was $1.95 billion for the first half of 2026 versus $1.26 billion, aided by a $1.0 billion increase in air traffic liability; the company has $3.79 billion of cash.
- Debt activity included a $1.5 billion term loan drawn under a March 2026 credit agreement, and a $1.25 billion share repurchase in the first half, with no buybacks in Q2 2026.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2026filed July 23, 2026Financial Statements
Q2 FY2026 against Q2 FY2025
| Line item | Q2 FY2026Q2 FY2025 | Change |
|---|---|---|
| Revenue | $8.43B$7.24B | +16.4% |
| Operating Income | $285.00M$225.00M | +26.7% |
| Net Income | $233.00M$213.00M | +9.4% |
| EPS (Basic) | $0.48$0.40 | +20.0% |
| EPS (Diluted) | $0.47$0.39 | +20.5% |
| Shares Outstanding (Basic) | 489.00M538.00M | −9.1% |
| Shares Outstanding (Diluted) | 493.00M541.00M | −8.9% |
05—Questions
Frequently Asked Questions
Why did Southwest's Q2 2026 results include a breakage revenue reversal, and how large was it?
The company revised its estimate of how many non-expiring flight credits issued between July 2022 and December 2025 will go unredeemed, from about 23% to about 20%, citing higher-than-projected redemptions. This resulted in a $285 million reversal of previously recognized breakage revenue, which reduced Q2 2026 net income by $185 million, or $0.37 per diluted share. The company treats the item as a special item excluded from non-GAAP results.
How much did higher fuel costs affect Southwest's expenses in the second quarter?
Aircraft fuel and related taxes expense was $2.2 billion in Q2 2026, up $889 million, or 67.0%, from a year earlier. The fuel cost per gallon, including taxes, was $3.92 compared with $2.32. The company discontinued its fuel hedging program and terminated its remaining hedges in 2025, so it is fully exposed to fuel price changes. The forward curve implied third-quarter 2026 fuel cost of between $3.70 and $3.75 per gallon.
What is Southwest's liquidity position and how is it funding its obligations?
As of June 30, 2026, the company reported unrestricted cash of $3.8 billion and access to $1.5 billion under its revolving credit facility, which expires in August 2028. It carried a working capital deficit of about $6.8 billion, which it attributes primarily to air traffic liability for advance ticket sales. The company also drew $1.5 billion under a term loan facility secured by certain aircraft and related assets and said it maintains investment-grade ratings from all three major credit agencies.
What are Southwest's capital return and capital spending plans?
The company paid $181 million in cash dividends in the first half of 2026 and repurchased $1.25 billion of common stock, all in the first quarter. It did not repurchase shares in the second quarter, and about $450 million remained under its $2.0 billion repurchase authorization as of June 30, 2026. For 2026, net capital spending is expected to be toward the low end of, or below, the $3.0 to $3.5 billion range, based on expected deliveries of 64 737-8 aircraft.
What is the status of Southwest's aircraft order book and delivery delays?
As of June 30, 2026, the company had 617 firm orders and options with Boeing for 2026 through 2031, including 262 737-7 firm orders and 215 737-8 firm orders. Boeing continues to experience delivery delays, and the FAA certification timing of the 737-7, for which Southwest expects to be the launch customer, remains uncertain. Capital commitments for firm orders total $14.8 billion, of which $3.9 billion falls in the remainder of 2026.
06—Continue