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SEC filingHigher fuel costs drove 87% drop in pre-tax income despite 16% revenue growth; operating margin fell to 2.7%.
In Q2 2026, total operating revenues increased 16.3% year-over-year to $16.7 billion, driven by passenger revenue growth of 15.9% to $15.2 billion. Strong domestic and international demand, along with a 11.9% increase in passenger yield, boosted passenger revenue per available seat mile (PRASM) by 10.0%. Cargo revenue rose 29.7% to $273 million on higher ton miles and yield, while other operating revenue increased 17.9% to $1.2 billion, primarily from the loyalty program.
Operating expenses surged 22.9% to $16.3 billion, with aircraft fuel and related taxes jumping 83.3% to $4.9 billion due to a 77.1% increase in average fuel price to $4.05 per gallon. Salaries, wages and benefits rose 5.9%, regional expenses 7.8%, maintenance 10.8%, and other costs 13.8%. Consequently, operating income declined 60.7% to $446 million, and net income fell 88.2% to $71 million. Operating margin contracted from 7.9% to 2.7%. Excluding net special items, pre-tax income decreased 83.5% to $144 million.
Passenger revenue remains the dominant segment, accounting for 90.9% of total revenue. The 11.9% yield improvement underscores pricing power, though load factor dipped 1.5 percentage points to 83.2%. Cargo revenue growth was driven by a 22.5% increase in cargo ton miles and a 5.8% yield improvement. Other revenue benefited from higher loyalty program contributions, with co-branded credit card cash payments reaching $1.8 billion in Q2 2026, up from $1.4 billion in Q2 2025.
Cost per available seat mile (CASM) increased 16.5% to 19.90 cents, primarily due to fuel. Excluding fuel, profit sharing, and special items, CASM rose only 2.9% to 13.93 cents, indicating manageable core cost inflation. Total revenue per available seat mile (TRASM) grew 10.3% to 20.45 cents.
Management emphasizes active cost management and ongoing reengineering through digital solutions, process enhancements, and procurement transformation. No specific quantitative guidance is provided, but they intend to continue investing in efficiency. The company notes volatile fuel prices (range $1.86-$4.78/gallon in H1 2026) and macroeconomic uncertainties from geopolitical conflicts and trade policies. As of June 30, 2026, no fuel hedging contracts were outstanding, leaving full exposure to fuel price fluctuations. Liquidity remains strong at $11.3 billion, including $7.8 billion in unrestricted cash and $3.5 billion undrawn credit facilities. Management also highlights compliance with debt covenants and ongoing liability management activities.