Thursday, January 20, 2011

Southwest Airlines reports $459 million net Income for 2010

Southwest Airlines 737-7H4 (29849/416) N754SW is captured on short final to Rwy 19R at John Wayne Orange County Airport (SNA/KSNA) on January 22, 2009.
(Photo by Michael Carter)

Southwest Airlines posted net income of $459 million for 2010, more than quadrupling a $99 million profit in 2009, marking the LCC's 38th consecutive year in the black.

Despite a 12.7% year-over-year increase in fuel costs in the fourth quarter, 2010 was a "very satisfying year," Chairman, President and CEO Gary Kelly told analysts and reporters. "Except for fuel, our outlook for 2011 is quite good," he said, citing "tremendous momentum" in revenue generation. "Pretty substantial" fuel hedging in place through 2014, fuel conservation initiatives and "revenue offsets" should allow the LCC to navigate a high fuel cost environment, he stated.

But in response to a question from ATW, he warned that per barrel crude oil prices reaching $120 would pose a serious threat to profitability. "If you look at our 2010 results, there's $1 billion that we have to work with to sustain some level of profitability," he explained. "Every $10 move in crude costs us $300 million, so at what point do we have a problem?" Noting that per barrel crude oil prices, now at just under $90, averaged around $80 in 2010, he said, "A $30-$40 move in crude oil [in 2011] from 2010 [average prices] to reach the $120 range would wipe out profitability, all things being equal … $110 would be alarming, but I think it's clear $120 would be a problem."

On the fleet front, the carrier said it has reached agreement with Boeing to take three of 23 737-700s slated for delivery in 2012 this year while switching the remaining 20 -700s to -800s, all of which will be delivered in 2012. Kelly said the carrier could have 50-100 -800s in its fleet "eventually," noting, "I think our baseline is we could use more than 50 in our route system as it exists today."

He repeated that SWA expects to close its acquisition of AirTran Airways during this year's first half, with early integration activities starting as soon as the second quarter.

Full-year 2010 revenue jumped 16.9% to $12.1 billion while expenses grew 10.2% to $11.12 billion, producing an operating profit of $988 million, nearly four times greater than a $262 million operating profit in the year-ago period. Traffic rose 4.8% to 78.05 billion RPMs on a 0.4% increase in capacity to 98.45 billion ASMs, producing a load factor of 79.3%, up 3.3 points. SWA plans to grow capacity 4%-5% in 2011 compared to 2010, achieved primarily through higher aircraft utilization.

Full-year 2010 yield heightened 10.8% to 14.72 cents as RASM escalated 16.5% to 12.3 cents and CASM rose 9.7% to 11.29 cents. CASM ex-fuel was up 5.8% to 7.61 cents. Fourth-quarter net income was $131 million, up 12.9% from a $116 million profit in the prior-year period, on a 14.8% lift in revenue to $3.12 billion.

(Aaron Karp - ATW News)

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