Southwest Airlines posts profit but issues cautious outlook; shares fall

For the third quarter, operating revenue reached a record $6.9 billion and net income was $54 million. Adjusted earnings per share stood at $0.11, surpassing analyst expectations. Unit revenues grew by around 0.4%, while capacity increased by 0.8%. Costs per available seat mile excluding fuel rose by just 2.5%, which was lower than many analysts anticipated given broader industry headwinds.

Loyalty program revenues were up by 7%, supported by double-digit growth in co-branded credit card signups. During the quarter, Southwest took delivery of eight Boeing 737 MAX 8 aircraft and retired sixteen older jets, ending with a fleet of 802 aircraft.

Looking ahead to the fourth quarter, Southwest expects record operating revenue along with strong RASM (revenue per available seat mile) and CASM (cost per available seat mile) performance. The company projects reasonable fuel prices even though it no longer hedges fuel costs.

Strategically, this quarter reflects progress in cost control and product improvements—key aspects of Elliott Management’s activist investment thesis for Southwest Airlines. However, with capacity increasing faster than projected revenue growth, there are concerns about limited pricing power as holiday travel approaches.

The company noted that “the airline's retrofit shift will help it boost available seats,” but premium product offerings are being deferred until 2026 as Southwest adopts a more measured approach toward expanding premium demand.

Cost discipline remains central to Southwest’s strategy: “Cost discipline has been Southwest's strength… Cost simplification strategies and attempts to generate more revenue (specifically through add-on services and the elimination of many premium benefits) have both had a positive impact on the airline.”

Despite these efforts, Southwest faces new risks tied to macroeconomic factors such as fluctuating fuel prices—especially after discontinuing its fuel hedging division earlier this year—and shifting customer priorities focused mainly on price and schedule convenience.