Southwest Airlines (LUV) AI Stock Analysis

Company Guidance

Southwest expects fourth quarter RASM to increase 19% to 21% year over year, with approximately 65% of fourth quarter revenue already booked; fourth quarter CASM-X to increase 4% to 4.5% year over year on capacity of 3% to 4%; fourth quarter adjusted earnings per share of $0.55 to $0.80 based on an average fuel price of approximately $4.55 per gallon using the forward curve as of October 15; and full year 2026 adjusted earnings per share of $2.60 to $2.85, approximately 67 new aircraft deliveries, 60 retirements, and net capital spending of $2.5 billion to $2.75 billion. Total gains on sale from retiring assets and sale leasebacks in the fourth quarter are expected to be broadly similar to those seen in the first and second quarters of this year, while gains from sale are also forecast to be lower sequentially in the fourth quarter. Southwest anticipates year over year unit cost growth to moderate from fourth quarter levels as it moves into Q1 and next year, expects earnings growth as it moves into 2027, and expects 2027 total deliveries to be higher than in 2026 and an increased level of retirements next year; specific 2027 guidance will be provided in 3 months. Management also said the $1 billion of EBIT from seat assignments and extra legroom seats in 2027 remains on track, if not ahead, and that the $1 billion discussed for bags has tracked, with bag fees increased a bit.