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Southwest profit up on higher fares, cheaper fuel

Created: 10/24/2013 9:06 AM WHEC.com

(AP) DALLAS - Average fares are rising on Southwest Airlines Co., the fuel bill is shrinking, and profit is soaring.

The airline is gearing up for the holiday travel season, and officials say that bookings for November and December are strong.

Southwest’s results are adding detail to the emerging picture of an airline industry that is continuing to rebound from the 2008 recession. Mergers have reduced the number of competitors, and the remaining airlines are boosting fares by controlling growth and limiting seats.

Southwest said Thursday that third-quarter net income jumped to $259 million, or 37 cents per share, from $16 million, or 2 cents per share, a year earlier.

Excluding special items such as fuel-hedging and costs of folding AirTran Airways into Southwest, the company said it would have earned 34 cents per share. That matched analysts’ forecast of adjusted profit.

Revenue rose 5.5 percent to a record $4.55 billion. Analysts were expecting $4.54 billion, according to FactSet.

The average one-way fare on Southwest increased 11.3 percent, to $159.39. Partly that could reflect longer flights _ the average trip was 1,000 miles, an increase of 41 miles or 4.3 percent.

The airline is also getting a break on fuel. It paid a few cents less per gallon and consumed 12 million fewer gallons of fuel than a year ago. The combination reduced Southwest’s biggest expense by 5.1 percent, to $1.45 billion.

That was helpful because the second-largest expense, labor, rose 6.9 percent to $1.27 billion.

The third quarter includes the last two months of the busy summer travel season, so it’s a strong period for airlines. Even with higher fares than last year, Southwest was able to fill 80.8 percent of its seats, although that was down from 82.1 percent in summer 2012.

When summer vacations end, travel drops off in the fall and winter, but Southwest is hinting at a busy holiday season. Chairman and CEO Gary Kelly said the recent partial government shutdown affected revenue but added that bookings for November and December were strong.

Kelly called the third-quarter results "very solid," and said that his airline _ once known as a scrappy underdog to the giants, but now the fourth-biggest U.S. carrier _ was transforming itself for the future.

Southwest is converting more AirTran flights to its own colors and brand, and expects to fully absorb AirTran by the end of 2014. The conversion includes using Southwest planes on international flights beginning next year.

In trading before the stock market’s opening, Southwest shares were up 34 cents, or 2.1 percent, to $16.75.

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Follow David Koenig at http://www.twitter.com/airlinewriter



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