Southwest Airlines (SA) Reports Strong First Quarter Growth but Guides Lower Q2’26 Margins Due to Higher Fuel Costs

Apr 25
3 min read

Updated: Apr 27

The financial performance in Q1’26 was solid, with revenue growth, EBITDA expansion, margin improvement, stable leverage, and strong liquidity. However, we remain watchful of rising fuel costs and the company’s ability to sustainably sell its customer buy-up program

Financial Performance Snapshot

Q1’26 - Earnings Summary

Total revenue increased to $7.2B (+12.8% YoY), driven by higher passenger revenue (+13.4% YoY) and other revenue (+6.5% YoY)

Passenger revenue increased to $6.5B (+13.4% YoY), driven primarily by additional ancillary revenue because of SA’s transformational initiatives, incl. the implementation of bag fees for most fare products and the operation of assigned and extra legroom seating for travel
Operating revenue per available seat mile (RASM) increased to $17.24 (+11.2% YoY). The increase was driven by higher passenger revenue earned per mile (+11.5% YoY) supported by strong demand across the network, contributions from transformational initiatives, and a 20 bps increase in load factor

Operating Expenses

Operating expenses increased to $6.9B (+4.0% YoY, +$268M) and capacity increased by 1.5% YoY. The majority of $ increase was due to higher salaries, wages, and benefits expense and aircraft fuel and related taxes expense
Operating expenses per ASM increased to $16.46 (+2.6% YoY) and Operating expenses per ASM, excluding fuel and related tax expenses, profit sharing and special items increased to $13.11 (+2.3% YoY)

Operating Expenses Breakup:

Salaries, wages, and benefits expense increased by 6.3% YoY to ~$3.3B, due to contractual step/pay rate increases and related benefits for the Company's workforce
Aircraft fuel and related taxes expense increased by 8.6% YoY to ~$1.3B the increase was due to higher jet fuel prices, particularly due to recent market disruptions and geopolitical events
Maintenance materials and repairs expense decreased by 11.3% YoY to ~$259M, the decrease was primarily due to a decrease in -700 engine shop visits
Landing fees and airport rentals expense increased by 9.6% YoY to ~$572M, the increase was attributable to higher airport rental expense, ~25% of the increase was due to higher landing fees driven by increased usage of the heavier -8 aircraft as well as higher rates, and the remaining increase was primarily due to receiving fewer favourable settlements and credits from various airports in 2026
Other operating expenses decreased by 4.9% YoY to ~$1.0B, due to focused Company wide effort to reduce discretionary expenses, the largest of which was significant reduction in external consulting spend due to the completion of various transformational initiatives since Q1’25

Credosh Adj. EBITDA

Adj. EBITDA came in at $728M (+171.6% YoY), while margin increased 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

FCF

Generated free cash flow of $788M, post capex of $630M, cash interest of $54M, cash taxes of $1M and working capital source of $776M.
- Working capital was driven by cash inflow from air traffic liability

Leverage & Liquidity (as of Mar’26)