Quarterly EPS Turnaround
Q1 EPS of $0.45 vs a year-ago loss of $0.26 (GAAP) and adjusted loss of $0.13, representing a material year-over-year improvement; management notes this result despite a $0.22 EPS fuel headwind in the quarter.
Southwest Airlines
· LUV
April 22nd, 2026
Summary
- Earnings Call Date:
- 2026-04-22
- Change Since:
- +30.02%
- Next Earnings Date:
- 2026-07-22
Earnings Call Sentiment
PositiveThe call emphasized substantial execution wins: a clear financial turnaround (positive EPS vs. loss last year), record revenues and unit-revenue strength, strong cash generation, rapid customer adoption of new products, margin expansion, and continued operational reliability. Those positive developments are tempered by a meaningful and volatile fuel cost spike that materially pressures margins and prompted management not to revise full-year EPS guidance; there are also investor questions about certain accounting changes (ATL) and ongoing network adjustments. On balance, the transformation appears to be working and driving durable improvements, but short‑term outlook uncertainty is elevated because of fuel.
Company Guidance
Southwest guided to second‑quarter EPS of $0.35–$0.65 using an average fuel assumption of $4.10–$4.15/gal (forward curve as of April 16), and expects Q2 unit revenue growth of 16.5%–18.5% year‑over‑year; Tom said Q2 CASM‑X should rise 3.5%–4% on roughly 0.5% capacity growth at the midpoint. Management left the full‑year adjusted EPS target of $4 unchanged for now but declined to update it given fuel and macro uncertainty, and now expects full‑year capacity growth of approximately 2% (down from prior 2%–3% at the top end). For context they highlighted Q1 results that underpin the outlook: Q1 EPS $0.45, RASM/unit revenue +11.2% YoY, operating margin 4.6% (up 8.1 pts YoY), CASM‑X +2.3% on ASMs +1.5%, operating cash flow $1.4B (+65% YoY), liquidity $4.8B and leverage ~2.2x; operational/product targets include Starlink on ≥300 aircraft by year‑end and ~2/3 of the fleet with in‑seat power, and $1.25B of buybacks YTD with $450M remaining.
Operating Margin Expansion
Q1 operating margin improved to 4.6%, an 8.1 percentage-point increase year-over-year (6.6 points on an adjusted basis), described as top-tier among large U.S. carriers.
Record Revenues and RASM Strength
Operating revenue reached a Q1 record of $7.2 billion; RASM (unit revenue) grew 11.2% year-over-year in Q1, with management guiding Q2 unit revenue growth of 16.5%–18.5% (management referenced ~17.5% in commentary). March was the largest operating revenue month in company history.
Strong Cash Generation and Capital Returns
Generated $1.4 billion in operating cash flow in Q1, up 65% year-over-year; ended the quarter with $4.8 billion in liquidity and reported share repurchases of $1.25 billion and $93 million in dividends (with $450 million remaining buyback authorization).
Successful Product Adoption & Ancillary Upsell
Customer buy-up from base product rose from ~20% in 2025 to ~60% in Q1 2026; managed corporate revenue increased 16% in Q1 and 25% in March; Rapid Rewards enrollments up 37% YoY and customers earning tier status up 62% YoY; ancillary upsell performance met expectations and cash sales accelerated relative to redemptions.
Cost Discipline and CASM-X Control
CASM-X rose 2.3% year-over-year in Q1 on a 1.5% capacity increase, coming in well below the prior guide of 3.5% and reflecting structural cost improvements across people, technology and maintenance buckets.
Operational Reliability & Product Enhancements
Operations delivered industry-leading reliability and on-time performance (including successful rollout of assigned seating and extra legroom on Jan 27); announced Starlink partnership (targeting Starlink on ≥300 aircraft by year-end) and in-seat power on roughly two-thirds of the fleet.
Balance Sheet & Fleet Flexibility
Leverage ratio reported at 2.2x (gross debt-to-EBITDA basis); completed a $500 million secured term loan to refinance higher-cost obligations; fleet plan intact with large deliveries ahead (management cited aircraft deliveries in the '60s' for the year) and flexibility from a largely owned/unencumbered fleet.
Operator
Hello, everyone, and welcome to the Southwest Airlines First Quarter 2026 Conference Call. I'm Nick and I will be monitoring today's call, which is being recorded. A replay will be available on southwest.com in the Investor Relations section. [Operator Instructions] Now Danielle Collins, Managing Director of Investment Relations will begin the discussion. Please go ahead, Danielle.
Danielle Collins
Hello, everyone, and welcome to Southwest Airlines First Quarter 2026 Earnings Call. In just a moment, we will share our prepared remarks, after which we will move into Q&A. Joining me today are Bob Jordan, our President and Chief Executive Officer; Andrew Watterson, our Chief Operating Officer; and Tom Doxey, our Chief Financial Officer. Before we begin, A quick reminder that in today's session, we will be making forward-looking statements, which are based on our current expectations of future performance, and our actual results could differ materially from expectations. Also, we will reference our non-GAAP results, which exclude special items that are called out and reconciled to GAAP results in our earnings press release. With that, I'll turn the call over to Bob.
Robert Jordan
Thank you, Danielle, and good morning, everyone. We appreciate you joining us today. First quarter 2026 represents an important milestone for Southwest as all our previously announced initiatives are now in place and contributing to our results and what a difference a year makes. That broad set of commercial, operational and cost and efficiency actions represent a fundamental transformation of our business model, and is translating in...
Subscribe to unlock transcripts
Get The Fly Pro 7 days for free