Southwest Beats Q3 Estimates but Cuts Profit Guidance on Higher Fuel Costs

what happened

Southwest Airlines reported quarterly profit and revenue above analyst expectations, along with progress in its turnaround effort. However, the carrier again reduced its profit outlook because of rising jet fuel costs, Barron's reports.

For the third quarter, adjusted earnings came in at 66 cents a share on operating revenue of $8.4 billion, up 21.2% from a year earlier and a third-quarter record. The average fuel price rose to $3.92 a gallon, above earlier assumptions of $3.70 to $3.75. Fuel costs were $821 million higher than in the same quarter last year.

The fourth-quarter adjusted earnings forecast of 55 to 80 cents a share fell short of the 81 cents Wall Street expected. The full-year outlook was narrowed to $2.60 to $2.85 a share, down from the $3.25 to $4.25 range given in July. CEO Bob Jordan said demand stayed strong and the earnings power the company built is durable, even with significantly higher fuel costs.

why it matters

Delta and United also pointed to soaring jet fuel prices in their latest reports, and Delta expects a $6 billion increase in fuel costs this year. For airlines, the price of jet fuel feeds directly into margins, so the sector remains sensitive to moves in oil product prices.

market impact

Airlines: higher jet fuel costs squeeze margins and weigh on LUV, DAL and UAL shares.

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