Southwest Air Profit Up On Cheaper Fuel

Southwest Airlines reported fourth-quarter net profit of USD$536 million, up from USD$190 million in Q4 2014.

Earnings before special items rose 46 percent to USD$591 million, as the falling cost of jet fuel added USD$189 million to Southwest's bottom line.

Including special items such as the change in the market value of Southwest's outstanding hedges, the company earned USD$536 million.

The US budget airline said it would soon start a USD$500 million accelerated stock buyback.

Southwest said it expected first-quarter unit revenue to be "in line" with a year earlier. The measure fell 0.7 percent in the fourth quarter.

"We've seen a continuation of strong demand and softer yields," or fares per mile per passenger, chief executive Gary Kelly said in a news release.

For months, lower fuel prices have ramped up competition in the United States, enabling large domestic carriers to reduce fares in line with budget airlines that have lower operating costs.

Cheap oil has also forced Southwest to pay hefty sums to counter-parties in hedge contracts that the carrier acquired for protection in case of rising energy prices. As a result, it will not reap the full benefit of cheaper fuel.

The Dallas-based airline said it expected to lose USD$1 billion from hedge contracts in 2016, as of January 15 prices.

Southwest said it still expected to increase its flight capacity by between 5 and 6 percent in 2016 and that results from its new international flights from Houston had been encouraging so far.

The company said it would retire some older planes in its fleet no later than mid-2018, increasing its new aircraft delivery schedule to accommodate this. This will contribute a rise of about 1 percent in unit costs this year.