Key Highlights

● Morgan Stanley trimmed estimates for Southwest and peers.

● Delta's fuel bill reached $4.1 billion in the quarter.

● US average diesel stood at $6.28 a gallon.

● Southwest has added assigned seating and premium options.

Southwest Airlines (NYSE:LUV) was one of several carriers caught up in a round of downward revisions on Friday. Morgan Stanley (NYSE:MS) trimmed its earnings estimates for Southwest, along with Delta Air Lines (NYSE:DAL), United Airlines (NASDAQ:UAL) and Alaska Air Group (NYSE:ALK), according to market data. The reports did not name the analysts or give updated targets, and Southwest's own share move for the day was not widely reported.

The revisions arrived on a day when airline investors had plenty to process. Delta's third-quarter report before the opening bell set the tone for the whole group.

The fuel message from Delta

Delta reported adjusted earnings of $1.72 a share, below consensus estimates that ranged from $1.82 to $1.92, and cut its 2026 adjusted earnings outlook to $5.10 to $5.60 a share from $6.50 to $7.50. Higher fuel prices were a key reason. Delta's third-quarter fuel bill rose to $4.1 billion, and the company expects to absorb about $6 billion in added fuel costs this year.

UBS (NYSE:UBS) also cut estimates and price targets for Delta, United and American Airlines (NASDAQ:AAL), saying it expects third-quarter misses. United and American slipped, while Delta's own shares recovered from premarket losses to close about flat.

Why Southwest is especially sensitive

Southwest built its reputation as a low-cost, point-to-point carrier focused mainly on domestic routes. That model depends on keeping costs tightly controlled so fares can stay competitive. When fuel prices spike, budget-focused airlines can find it harder to pass on the full increase to price-conscious travellers.

Southwest has also been reworking its business in recent years, adding features such as assigned seating and premium options in a bid to lift revenue per passenger. Higher fuel bills can complicate that effort by eating into the gains.

Energy markets offer little relief so far. Brent crude settled at $104.72 a barrel on Friday and US crude at $91.85. Hurricane Isaias has shut in nearly two-thirds of Gulf of Mexico oil output, and the US average diesel price was $6.28 a gallon, according to market data. President Donald Trump announced a deal for Russia to supply diesel and said the US would not attack Iran before the November 3 midterms, which helped push oil lower during the day before prices recovered.

Consumers under strain

Delta chief executive Ed Bastian said: "The consumer response continues to be quite strong." But the University of Michigan's preliminary October sentiment index fell to 46.3, a five-month low, with survey director Joanne Hsu noting: "Frustration over cost-of-living continues to mount". For a carrier with many leisure and budget travellers, how households feel about their finances matters.

Market backdrop

The broader market rose on Friday. The S&P 500 gained 46.18 points to 7,811.54, finishing just below its record close, and the Dow added 423.31 points to 51,654.95. Airlines lagged on fuel worries. The 10-year Treasury yield is near a 24-year high after the Federal Reserve raised rates in September for the first time since 2023, adding to cost pressures for capital-heavy businesses.

Southwest's Revenue Initiatives Face a Costly Fuel Test

Southwest's third-quarter report will show how much fuel is weighing on margins and whether its revenue initiatives are offsetting the pressure. Investors will also follow oil prices, Hurricane Isaias and the Iran situation. On the macro calendar, September consumer price data arrives on Wednesday, October 14, bank earnings run from October 13 to 16 and the Fed meets on October 27 to 28. Monday, October 12 brings a stock session but no bond trading, because of Columbus Day.