LUV · Southwest Airlines Co.

Southwest Airlines reported a significant financial turnaround in the first quarter of 2026, marking a pivotal milestone in its transformational plan. Operating revenues reached a first-quarter record of $7.2 billion, a 12.8% increase year-over-year, driven by strong demand for new product offerings and record managed business revenue performance. The Company achieved an operating margin of 4.6%, an improvement of 8.1 percentage points compared to the same period last year. This margin expansion was realized despite a substantial headwind from fuel costs, which averaged $2.73 per gallon—well above the prior guidance of approximately $2.40—and negatively impacted EPS by approximately $0.22. Management highlighted that the commercial, operational, and cost initiatives implemented over the last 18 months are now delivering tangible results, including double-digit unit revenue growth and strong cost discipline, with CASM-X increasing only 2.3% on capacity growth of 1.5%. The Company generated $1.4 billion in operating cash flow and returned over $1.3 billion to shareholders through share repurchases and dividends. Looking ahead, Southwest provided second quarter 2026 guidance for adjusted EPS in the range of $0.35 to $0.65, with RASM expected to increase 16.5% to 18.5% year-over-year. However, management noted that updating full-year adjusted EPS guidance of $4.00 would not be productive at this time due to ongoing macroeconomic uncertainty and high fuel prices.