Southwest Airlines shares fall as weak Q3 outlook overshadows earnings beat

Southwest Airlines Co (NYSE:LUV) shares fell about 5% in early trading Thursday after the airline reported stronger-than-expected second-quarter results but issued a third-quarter earnings outlook that fell below Wall Street expectations.

The company reported adjusted earnings per share of $0.94 for the second quarter, ahead of consensus estimates of $0.51. Revenue also topped expectations, with adjusted operating revenue reaching a record $8.7 billion, up 20.3% year over year, compared with analyst estimates of $8.58 billion. Managed business revenues reached an all-time quarterly record, rising 30% year over year. The company’s Rapid Rewards loyalty program also reached its largest size ever at nearly 100 million members, with new enrollments increasing 35% year over year and record numbers of tier qualifiers.

“Second quarter results demonstrate the earnings power of our business. We delivered results well ahead of consensus expectations despite nearly $900 million of additional fuel expense year-over-year,” Southwest CEO Bob Jordan said in a statement.

Despite the stronger-than-expected quarterly performance, investors focused on Southwest’s forward outlook. The airline guided for third quarter adjusted earnings per share of $0.50 to $0.75, while lowering its full-year 2026 adjusted EPS outlook to a range of $3.25 to $4.25 from its previous expectation of at least $4. For the third quarter, Southwest expects revenue per available seat mile to increase between 17.5% and 19.5% year over year, while capacity is expected to range from a 1% decline to flat growth. The company expects adjusted cost per available seat mile excluding fuel to increase...