July 22 (Reuters) – Southwest Airlines lowered its annual profit forecast on Wednesday, after renewed U.S.-Iran fighting sent fuel prices surging again, eclipsing the benefits of strong travel demand and gains from assigned seating and extra-legroom offerings.
Shares of the Dallas-based carrier fell 2% in extended trading, after it also forecast third-quarter profit below Wall Street expectations.
It expects full-year adjusted earnings of $3.25 to $4.25 per share, with the midpoint below its previous forecast of at least $4. Analysts estimated 2026 profit at $3.17 per share, according to data compiled by LSEG.
U.S. airlines have raised fares and baggage fees as well as pared back schedules to offset soaring fuel costs, which have added billions of dollars to industry expenses this year. U.S. airline fuel bills jumped 85% in May alone to nearly $6.7 billion.
Jet fuel prices more than doubled after the Iran war began, and traffic through the Strait of Hormuz was severely disrupted. Prices retreated sharply from their spring peak after a fragile U.S.-Iran truce in June, but climbed again as hostilities resumed in July.
Oil prices hit a six-week high this week as attacks and threats to other regional shipping routes renewed fears of supply disruptions.
The persisting volatility has made it more difficult for airlines to forecast costs and earnings, particularly because their fuel estimate is generally based on forward-market prices at a specific point in time.
Southwest paid an average fuel price of $3.92 per gallon in the second quarter, compared with its forecast of $4.10 to $4.15 per gallon. Still, the fuel spike added nearly $900 million in additional costs, representing an adjusted earnings hit of $1.17 per share during the period.
For the third quarter, it expects fuel costs of $3.70 to $3.75 per gallon, based on the jet-fuel forward curve as of July 17.
Elsewhere in the industry, the fuel shock clouded Alaska Air’s profit outlook despite strong bookings, while Delta and United expect robust demand and higher fares to help absorb the hit from increased fuel expenses.
Southwest forecast third-quarter adjusted earnings of 50 cents to 75 cents per share, below analysts’ estimate of 82 cents.
The carrier also expects unit revenue, a measure of pricing power, to rise between 17.5% and 19.5% in the third quarter, with unit costs, excluding fuel, likely climbing 3.5% to 4%.
The company reported second-quarter adjusted earnings of 94 cents per share, beating the estimate of 51 cents. Its operating revenue rose 16.4% to $8.7 billion, also above expectations of $8.58 billion.
(Reporting by Nandan Mandayam in Bengaluru; Editing by Shilpi Majumdar)
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