Southwest's Q2 Profit Beats Expectations

July 29, 2010

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Low-cost airline Southwest Airlines reported a second-quarter profit that surpassed expectations, buoyed by strengthening consumer demand and lower-than-expected costs.

Southwest said it saw record traffic levels in the second quarter and expected "strong" growth in unit revenue in the third quarter based on current traffic and revenue trends.

"We see no signs that the momentum will stall in second half 2010," chief executive Gary Kelly said in a statement.

In the second quarter, net income rose to USD$112 million, from USD$91 million a year ago. Revenue rose 21.1 percent to USD$3.2 billion.

Second-quarter unit costs, excluding fuel, rose 6.4 percent as fuel costs rose. The company received an USD$18 million refund from the Transportation Security Administration for excess security fees charged since 2005.

Southwest is the last major airline to report results for the second quarter. Major airlines have said they've been able to command higher fares as travel demand rebounds.

Based on projections for July, Southwest could forecast July's unit revenue to be within the 20 percent to 22 percent range, Barclays analyst Gary Chase said in a note.

Southwest said its capacity in 2010 would be even with 2009 levels. The company is eyeing a "modest" capacity increase, although no fleet growth, in 2011.

Southwest said it has no plans to increase the fleet in 2012. Keeping capacity -- as measured by available seat miles -- low is seen as key to the recovery for the broader airline industry.

(Reuters)