Southwest Airlines Quarterly Profit Jumps 35 Pct

July 21, 2016

Southwest Airlines' second quarter profit rose 35 percent as fuel costs fell and the budget airline flew fuller planes.

The carrier's net income increased to USD$820 million in the second quarter ended June 30, from USD$608 million a year earlier.

Total operating revenue rose 5.3 percent to USD$5.38 billion.

Southwest said it expected revenue per available seat mile (RASM) to fall 3-4 percent in the quarter ending September.

"While solid traffic demand has continued into July thus far, the fare environment remains challenging," chief executive Gary Kelly said in a statement.

RASM, a key indicator of an airline's performance, measures sales against flight capacity.

Southwest's total expenses rose 2 percent to USD$4.11 billion in the second quarter. However, unit cost fell 2.6 percent, helped by lower fuel costs.

Lower fuel prices have pushed up competition in the US airline industry, allowing large domestic carriers to cut fares to levels offered by budget airlines.

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

The results come a day after Southwest halted all flight departures temporarily as it worked to resolve issues impacting multiple technology systems.

Kelly, in an interview on CNBC, termed the problem "unusual" and indicated that it would take some time for operations to return to normal.

"The technology is restored as of about 1am or 2am this morning and now the operation just needs some time today to catch up," he said. "So, it will be another tough day today but not nearly as bad as yesterday."

(Reuters)