Key Highlights

● Southwest jumped to about $41.26 despite cutting its 2026 profit outlook.

● Southwest reported record revenue per available seat mile and earnings of $0.66 a share.

● American Airlines rose to about $12.57 and plans to slow capacity growth.

● Delta Air Lines rose to about $78.52 in sympathy with Southwest.

Airlines are paying a steep price for oil's climb. On Thursday, investors appeared to decide that the industry is coping better than feared.

Southwest Airlines (NYSE:LUV) jumped to about $41.26 by mid-afternoon on Thursday, October 22, even after cutting its 2026 profit outlook because of fuel. American Airlines (NASDAQ:AAL) also rose, to about $12.57, despite forecasting more losses.

Airline stocks rose broadly after Southwest's strong third-quarter results. The gains came as Brent crude climbed to $113.17 a barrel, its highest since May 4.

Southwest's mixed message

Southwest's quarter, reported after the close on Wednesday, was strong. Earnings came to $0.66 a share, beating estimates of $0.58. Revenue reached $8.42 billion, above the $8.25 billion expected, and revenue per available seat mile hit a record.

But fuel took a heavy toll on the outlook. Southwest cut its 2026 earnings guidance to $2.60 to $2.85 a share, down from $3.25 to $4.25, which puts the top of the new range below the bottom of the old one. The airline cited $821 million in extra fuel costs and expects fourth-quarter fuel at $4.55 a gallon. It guided fourth-quarter earnings to $0.55 to $0.80 a share.

The record unit revenue pointed to strong demand, which appeared to outweigh the lower guidance in Thursday's trading.

American's losses

American Airlines reported a loss of $0.41 a share before Thursday's open. It forecast an adjusted fourth-quarter loss of $1.10 to $0.50 a share and a full-year 2026 loss of $1.00 to $1.60 a share.

The airline said it plans to slow capacity growth. Slower capacity growth can help support fares when costs are high.

United and Delta

United Airlines (NASDAQ:UAL) cut the high end of its guidance, citing energy costs. Its shares were roughly flat at about $101.

Delta Air Lines (NYSE:DAL) rose to about $78.52 in the afternoon, moving in sympathy with Southwest.

The fuel backdrop

The pressure on airlines stems from the Middle East. Brent has climbed sharply since the Iran war began in late February, and was below $97 at the start of October.

This week brought fresh tension. Houthi attacks in Saudi Arabia hit Dammam airport and an Aramco oil field, and the State Department ordered non-emergency staff to leave Saudi Arabia. A media report said the US and Israeli militaries have plans to renew strikes on Iran after the November 3 midterm elections.

Railroads have benefited from the same fuel shock, as high diesel prices push freight from trucks to trains. Airlines have no such advantage, leaving them to manage costs through pricing and capacity.

Airline gains fit Thursday's rotation away from technology. The Nasdaq Composite tumbled 694 points to 26,008.86, its steepest drop since June 5, as AI stocks sold off. The Dow Jones Industrial Average edged up 11.89 points to 52,867.98, and about two of every three S&P 500 stocks rose, according to market data. Volatility picked up, with the VIX climbing 2.35 points to 19.03.

Fuel Assumptions Airlines Must Beat

Oil prices will dictate the next move for airline stocks. Any escalation in the Middle East could push fuel higher, while easing tensions could bring relief. Investors will also watch holiday travel bookings and whether other carriers follow American in trimming capacity. Southwest's fourth-quarter fuel assumption of $4.55 a gallon will be a key benchmark.