Thursday, October 21, 2010

Southwest Airlines posts 3rd quarter profit.

Southwest Airlines 737-7H4 (36660/3226) N945WN "Florida One" touches down on Rwy 19L at John Wayne Orange County Airport (SNA/KSNA).
(Photo by Michael Carter)

Southwest Airlines Co. is making money as more people travel on the nation's largest discount airline.

Southwest said Thursday it earned $205 million in the late-summer third quarter.

Traffic was up about 5 percent, which along with higher average fares pushed revenue up 20 percent.

CEO Gary Kelly said the outlook for October is excellent too. He predicted revenue per passenger will rise in the fourth quarter even though that's usually a slow period for travel, other than the December holidays.

Dallas-based Southwest joins United, Continental, Delta, American, US Airways and JetBlue in posting third-quarter profits as the airlines benefit from higher fares and growing travel demand coming out of the recession.

The airlines have helped themselves by limiting available seats, which makes flights more crowded and drives up fares. Southwest has set monthly records for high occupancy in 14 of the last 15 months.

The airline said it earned 27 cents per share compared with a loss of $16 million, or 2 cents per share, in last year's third quarter.

Not counting specials items such as changes in the value of fuel hedges, Southwest would have earned 26 cents per share, a penny better than analysts expected, according to a Thomson Reuters survey.

Revenue rose to $3.19 billion from $2.67 billion a year ago, slightly higher than the $3.17 billion that analysts expected.

Southwest shares rose 49 cents, or 3.7 percent, to $13.65 in morning trading.

While revenue is rising, Southwest faces a challenge in controlling costs. Its cost for each mile flown rose more than 7 percent in the third quarter, partly due to losses from fuel-hedging contracts, and the company expects fourth-quarter costs to rise too.

Southwest flies only within the lower 48 states, which means it isn't benefiting from the sharp increase in international travel.

That could start to change with the deal it announced last month to buy rival low-fare airline AirTran for $1.4 billion, as AirTran flies to Mexico and the Caribbean. The deal would also put Southwest in direct competition with Delta in Atlanta, the biggest U.S. city that Southwest doesn't serve already.

Southwest would grow 25 percent by swallowing AirTran. Without the deal, Southwest has no plans to expand its fleet for several years, Kelly said.

No comments: