Southwest Airlines lowers annual profit target as higher fuel costs bite

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 ALK.N profit outlook despite strong bookings, while Delta DAL.N and United UAL.O 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%.