01—Abstract
Summary
Summary of the 8-K filed July 22, 2026. Cited figures are marked; the original filing is the authoritative source.
Southwest Airlines Co. reported second quarter 2026 results with record operating revenues of $8.4 billiona, up 16.4% year-over-year, and net income of $233 million, or $0.47 per diluted share.
Excluding special items, adjusted net income was $465 millionb, or $0.94 per diluted share, compared with $0.43 in the prior-year quarter. Adjusted operating margin was 6.7%, up 3.3 points, despite an $889 million increase in fuel expense. Results included a $285 million reversal of breakage revenue tied to non-expiring flight credits, which the company treated as a special item and excluded from adjusted results.
Management cited record managed business revenues, up 30% year-over-year, and Rapid Rewards growth, with new enrollments up 35% and membership at nearly 100 million. The company updated its 2026 outlook. Full-year adjusted EPS is now guided to $3.25 to $4.25c, replacing the prior expectation of at least $4.00.
Third-quarter adjusted EPS is guided to $0.50 to $0.75d, with RASM expected to rise 17.5% to 19.5% year-over-year and CASM-X expected to rise 3.5% to 4.0%. Fuel cost per gallon was $3.92 in the quarter, below prior assumptions of $4.10 to $4.15, and third-quarter fuel is assumed at $3.70 to $3.75 per gallon based on the July 17, 2026 forward curve. Full-year capacity growth is now expected at approximately 1.5%, versus the prior 2%.
Balance sheet and capital return items include $5.3 billion of liquidity at quarter-end, gross leverage of 2.1x, $88 million in dividends paid in the quarter, and $450 million remaining under the $2.0 billion share repurchase authorization. Total stockholders' equity fell to $7.1 billion at June 30, 2026 from $8.0 billion at December 31, 2025, and the company expects 2026 net capital spending toward the low end of, or below, $3.0 billion to $3.5 billion.
02—Key points
Key Highlights
- Net income of $233 million, or $0.47 diluted EPS; adjusted net income of $465 million, or $0.94 adjusted EPS, versus $0.43 a year earlier
- Record operating revenues of $8.4 billion, up 16.4%; adjusted operating revenues of $8.7 billion, up 20.3%
- Adjusted operating margin of 6.7%, up 3.3 points year-over-year, despite an $889 million increase in fuel expense
- $285 million breakage revenue reversal on non-expiring flight credits recorded and excluded from adjusted results
- Full-year 2026 adjusted EPS guidance lowered to $3.25 to $4.25 from at least $4.00; third-quarter adjusted EPS guided to $0.50 to $0.75
- Managed business revenues up 30% year-over-year to an all-time quarterly record; Chase co-branded card acquisitions up 28%
- Ended the quarter with $5.3 billion in liquidity and gross leverage of 2.1x; $450 million remains under the $2.0 billion buyback authorization
03—Questions
Frequently Asked Questions
Why was full-year 2026 adjusted EPS guidance changed?
The filing states that the updated range of $3.25 to $4.25 replaces the prior expectation of at least $4.00. The guidance is based on the forward fuel curve as of July 17, 2026 and assumes the current fare environment and demand trends remain broadly intact. The filing does not give a detailed bridge for the change.
What was the $285 million adjustment, and how does it affect results?
The adjustment reflects a reversal of a portion of breakage revenue recognized from 2022 to 2025 on non-expiring flight credits issued in that period. It reflects a 3 percentage point increase in the redemption assumption based on current redemption trends. The company treated it as a special item and excluded it from adjusted results, and no breakage revenue on these credits was recorded during 2026.
How did fuel costs affect the quarter and the outlook?
Second-quarter fuel cost was $3.92 per gallon, below prior assumptions of $4.10 to $4.15, and fuel expense rose $889 million year-over-year, a $1.17 headwind to adjusted EPS. Third-quarter fuel cost is assumed at $3.70 to $3.75 per gallon based on the July 17, 2026 forward curve, which includes a $0.05 per gallon net premium expense related to terminated fuel derivative contracts.
What are the third-quarter operating expectations?
The company expects third-quarter ASMs to be down 1% to flat year-over-year and RASM to increase 17.5% to 19.5%, including the headwind from lapping 2025 bag fee implementation. CASM-X is expected to rise 3.5% to 4.0%, including a 1.1 point headwind from removing six seats from the Boeing 737-700 fleet.
What are the company's capital spending and capital return plans?
The company expects 2026 net capital spending toward the low end of, or below, $3.0 billion to $3.5 billion, including the impact of aircraft sales and sale-leaseback transactions. It paid $88 million in dividends in the second quarter and has $450 million remaining under its $2.0 billion share repurchase authorization. Repurchases of common stock were $1.25 billion in the first six months of 2026, and no repurchases were made in the second quarter.
04—Continue