Southwest 3Q net profit rises 77.5% on robust capacity growth

Southwest Airlines Boeing 737-7H4 (33861/1543) N474WN taxies onto Rwy 19R at John Wayne Orange County Airport (SNA/KSNA) on June 20, 2012.

(Photo by Michael Carter)

Southwest Airlines earned net income of $584 million in the third quarter, up 77.5% from a net profit of $329 million in the 2014 September quarter, as the carrier continued to grow capacity at a faster rate than other major US airlines.

“We’re real happy with the product we have right now,” chairman, president and CEO Gary Kelly told reporters and analysts, adding, “We want to be America’s low fares leader, and I think we are. We’re the only carrier that doesn’t nickel and dime with bag fees and change fees, so that provides tremendous value.”

Southwest grew capacity 7.6% year-over-year in the quarter and expects to grow capacity 7% for the full year and another 5%-6% in 2016. Kelly said Southwest is taking advantage of growth opportunities at Dallas Love, Washington National and Houston Hobby airports.

Southwest’s third-quarter revenue increased 10.8% year-over-year to $5.32 billion while expenses dropped 2.2% to $4.09 billion, producing an operating profit of $1.22 billion, nearly double operating income of $614 million in the prior-year period.

The Dallas-based airline’s third-quarter traffic rose 8.9% year-over-year to 31.05 billion RPMs on a 7.6% hike in ASMs to 36.36 billion, producing a load factor of 85.4%, up 1 point. Yield declined 5.1% to 15.19 cents.

Kelly asserted that Southwest’s negative third-quarter RASM, down 0.4% year-over-year (PRASM dropped 4%), is misleading on the surface because of various factors, including a continuing increase in the stage length of Southwest flights (up 3.6% year-over-year in the third quarter), operating more higher gauge aircraft and developing new markets.

“There’s quite a bit of noise in those numbers,” Kelly said. “They look very good to me when you tease out the impact of stage length, the impact of gauge [and other factors]. If you’re careful and you look at the analysis, I think you’ll be pretty impressed with the revenue performance.”

(Aaron Karp - ATWOnline News)