Southwest posts $152M 4Q profit on strong traffic

AP News
Posted: Jan 19, 2012 5:09 PM
Southwest posts $152M 4Q profit on strong traffic

Travelers should get used to higher air fares and full planes.

That formula helped Southwest Airlines Co. overcome a spike in fuel costs and earn $152 million in the fourth quarter.

The carrier, which flies more passengers in the U.S. than any other airline, raised its average fare by 10 percent to $140. And even with pricier fares and a tough economy, Southwest still filled 80 percent of its seats, an unusually high percentage.

With forecasts of even higher fuel prices this year, expect Southwest and other airlines to stick with that strategy _ especially if travel demand improves with the economy.

People fly more when the economy is good, and there are signs that growth is recovering from the recession.

Auto sales picked up late last year. U.S. factory output rose sharply in December. The stock market is up _ the Dow Jones industrial average has gained 3 percent so far in 2012.

Southwest CEO Gary C. Kelly says demand "has just been very steady, very stable, very strong and that's what we're seeing so far here in January."

Southwest was the first major U.S. airline to report fourth-quarter results. United Continental Holdings Inc., Delta Air Lines Inc. and US Airways Group Inc. will release theirs next week, and analysts expect all three to show operating profits.

The trends bode well for this year.

"2012 is going to be better for Southwest. It's going to be a good year for the airline industry," says Ray Neidl, an analyst with Maxim Group LLC. He predicts the industry could double its 2011 profit.

Neidl says that's possible with just modest economic growth because airlines are limiting flights, which keeps planes full and pushes fares higher.

Even if Southwest doesn't raise fares, "it might mean you won't see as many cheap seats for sale," says Raymond James analyst Savanthi Syth.

At Southwest and most other airlines, the biggest challenge to making money will be high jet fuel prices.

Southwest paid 34 percent more at the pump to fill its fleet of Boeing 737s in the fourth quarter. Fuel averaged $3.29 per gallon, up from $2.46 a year earlier, and Southwest's fuel tab for the final three months of the year came to $1.49 billion.

And there's no relief in sight. Southwest expects to spend $3.35 per gallon in the first quarter, up from $2.95 per gallon in same period last year.

Southwest's fourth-quarter net income rose 16 percent. Excluding special items, mostly gains from fuel-hedging contracts that rise in value with oil prices, Southwest's profit fell to $66 million, or 9 cents per share. That still beat Wall Street expectations by a penny, according to FactSet.

With the addition of AirTran Airways, which Southwest bought last year, revenue rose to $4.11 billion.

AMR Corp.'s American Airlines, meanwhile, is expected to report a loss and to keep losing money in 2012. The company filed for bankruptcy protection in November and has begun trimming marginal flights, which could push some travelers to its more-successful competitors.

Neidl, the Maxim analyst, says United and Delta will benefit most from American's troubles because they fly many of the same long-haul routes. He says Southwest would be helped too if American cuts flights at its Dallas hub.

Southwest shares rose 27 cents, or 3 percent, to $9.29 in afternoon trading.