Southwest Posts First-Quarter Net Profit

April 19, 2012

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Southwest Airlines reported net income of USD$98 million in the first quarter, with demand said to be steady, sending its shares up.

The carrier, which acquired discount rival AirTran last year, said traffic and booking trends were solid for April even as oil-related price increases continued pressuring results.

Southwest said it expects fuel costs including taxes to be in the USD$3.40- to USD$3.45-a-gallon range for the current second quarter, compared with USD$3.44 a gallon in the first quarter.

"Fuel has been behaving itself a little bit lately, (but) I wouldn't count on that long-term going into the summer season," said Ray Neidl, an airline analyst with Maxim Group. "But demand remains strong."

Airlines have merged, trimmed money-losing routes and raised ticket prices to return to stability after the 2008-2009 downturn. Rebounding corporate travel has also helped the industry, but rising fuel prices are always a threat.

Fuel also squeezed Alaska Air, which reported a lower first-quarter profit on Thursday. American Airlines parent AMR, which is operating under Chapter 11 protection, posted a wider quarterly loss, citing fuel and expenses tied to its reorganisation. The first quarter is typically the weakest period for US airlines.

Southwest's net income was USD$98 million in the first quarter, compared with USD$5 million a year earlier.

Revenue rose 29 percent to about USD$4 billion. Operating expenses rose 27 percent, with fuel and oil costs up 45.5 percent.

"As far as the operations go, it's a little disappointing year over year" as Southwest had a loss in the first quarter compared with a small year-ago profit, said Maxim Group's Neidl.

"Besides the fuel situation... there's probably still some indigestion problems regarding the integration of AirTran that should clear itself up over the next 12 months," he added.

Buying new, more fuel-efficient planes is a key plank in projects Southwest has planned to foster growth and reduce operating costs. Southwest in March began taking delivery of bigger Boeing 737s, and will be the first customer for the Boeing 737 MAX, the newest version of the narrow-body that is expected to come to market by 2017.