Southwest Airlines Q1’26 Earnings Flash

Southwest Airlines (SA) reported Q1’26 results with solid operating performance, supported by pricing-led revenue growth and meaningful margin expansion.

However, we remain watchful of rising fuel costs and the sustainability of the company’s customer buy-up strategy. A detailed commentary will follow post additional filings and earnings call.

Key Highlights:

• Record Q1’26 growth but missed analyst estimates

• Guided Q2’26 below street estimates leading to stock fall of ~3.84%

• Gross debt/net debt of 2.1x/1.0x, with liquidity of $4.8B (incl. RCF)

• Revenue growth was driven by price increase rather than volume increase, in-line with industry

• Average passenger fair increased by 16.6% YoY to $225.9 from $193.7 in Q1’25

• Passengers carried (in 000’s) declined to 29,175 from 29,990 in Q1’25

• Credosh adj. EBITDA increased by 171.6% YoY to $728M from $268M in Q1’25, while EBITDA margin expanded to 10% vs 4.2% in Q1’25

• Operating cash flow of $98M vs $(233M) in Q1’25 and FCF of $788M vs $359M in Q1’25

Q1’26:

• Revenue increased by 12.8% YoY to $7.2B, driven by higher passenger fair partially offset by lower passenger carried.

  
  

• Credosh Adj. EBITDA increased by 171.6% YoY to $728M, while EBITDA margin expanded to 10% vs 4.2% in Q1’25.

  
  

• The increase in adjusted EBITDA was driven by strong unit revenue growth (RASM +11.2% YoY) supported by pricing and mix, while non-fuel unit costs remained well controlled (CASM-X +2.3% YoY). This resulted in significant expansion in unit margins (RASM–CASM spread), driving overall margin improvement despite higher fuel costs.

Q2’26 Guidance:

Given the ongoing macroeconomic uncertainty, SA did not update its full-year EPS guidance and said “Achieving the previously guided outcome would require lower fuel prices and/or stronger revenue performance to offset higher fuel expense.”

• Available seat miles (ASMs): Flat to up 1.0% YoY

• RASM: 16.5% to 18.5%

• CASM-X: 3.5% to 4.0%

Definition:

• RASM: Operating revenue per available seat mile

• CASM-X: Operating expenses per available seat mile, excluding aircraft fuel and related taxes expense, special items, and profit sharing

• Credosh Adj. EBITDA: Adjusted EBITDA as per our analyst