Shares of Southwest Airlines (LUV) are trading higher after the airline reported record third-quarter results Wednesday after market close. Yes, record results and higher fuel costs in the same sentence. Let's walk through how that math works.

Southwest Airlines Q3 Financials

Southwest reported third-quarter revenue of $8.42 billion, up 21.2% year-over-year. That beat a Street consensus estimate of $8.25 billion, according to market data.

Unit revenue was up 21.6% year-over-year in the quarter, hitting all-time company records. Passenger revenue and passenger yields were the highest in company history. The company also said 20 of the 50 all-time top managed business booking days happened in the third quarter. That's a lot of corporate travelers deciding Southwest was the move.

Third-quarter earnings of 66 cents per share beat a Street consensus estimate of 58 cents per share.

Southwest said it expanded margins despite having fuel headwinds in the quarter. Operating margins were 4.5%, which came with an $821 million increase in fuel costs compared to last year's third quarter. This represents a headwind of around $1.08 for earnings per share.

"Demand remained strong as we lapped last year's bag fee and other commercial initiatives, reinforcing our belief that the earnings power we've built is durable, even with significantly higher fuel costs," the company said.

What's Next for Southwest Airlines

The company expects fourth quarter revenue per available seat mile to be up 19% to 21% year-over-year.

Southwest guided for fourth quarter earnings per share of 55 cents to 80 cents per share.

The company lowered its full-year earnings per share guidance from a prior range of $3.25 to $4.25 to a new range of $2.60 to $2.85.

Southwest expects fuel cost to be $4.55 per gallon for the fourth quarter, compared to $3.92 per gallon in the third quarter. So the fuel pressure isn't going away anytime soon.

The company will host a Capital Markets Day in New York City on March 2, 2027. That event will include a look at the company's "multi-year financial framework" and financial targets.

Southwest Airlines Stock Price Action

Southwest stock is up 1.1% to $40.30 in after-hours trading Wednesday versus a 52-week trading range of $29.26 to $55.11.