DALLAS – Southwest Airlines packed even more people on its planes, notched a record first-quarter profit of $511 million, and said solid bookings have continued into April.
The Dallas carrier topped Wall Street expectations, and Southwest shares jumped sharply before the opening bell Thursday.
Southwest has been adding flights and bigger planes, bucking industry concern that such growth is leading to lower prices. Indeed, Southwest’s average fare dipped 3 per cent to $153.75 each way.
Passenger traffic grew faster than Southwest added seats, however, and 80.5 per cent of seats were filled on the average flight, a Southwest record for the first quarter in what is typically a weak time of year for travel.
CEO Gary Kelly said that the solid bookings and revenue trends continued in April and he predicted modest growth in operating revenue for every mile passengers fly in the second quarter.
Southwest’s $511 million profit compared with $453 million a year earlier. Excluding one-time gains and charges, the company said it earned 88 cents per share, which was 4 cents better than analysts had expected, according to polls by Zacks Investment Research and FactSet.
Revenue rose 9 per cent to $4.83 billion.
Southwest spent $852 million on fuel in the quarter and continued to get a break from lower oil prices. However, its fuel savings of 3 per cent were slimmer than at other airlines. Labor is now easily Southwest’s biggest expense, and that grew nearly 9 per cent in the quarter, to $1.54 billion.
Southwest also announced that it will speed up the retirement of its oldest Boeing 737 models by one year, to 2017. That way the old 737-300s will be gone before Southwest begins receiving the newest version of the plane, called the 737 Max, from Boeing.
Kelly said that would reduce planned growth in 2017.
Shares of Southwest Airlines Co., the nation’s fourth-biggest airline, gained $1.25, or 2.7 per cent, to $48.30 in trading more than an hour before Thursday’s opening bell.
Compared with the 1990s when it was a stock market favourite, Southwest today faces tougher competition on all sides.
A new breed of ultra-low-cost carriers like Spirit can undercut it on fares. Other rivals are perceived to have better amenities, like JetBlue Airways, or better operations, like Alaska Airlines. The big three of American, Delta and United have cut their costs and can compete better with Southwest for leisure travellers while retaining an advantage in corporate accounts.
Southwest, however, retains a loyal customer base. Its revenue for every mile passengers fly has held up better than other U.S. airlines.
Barclays analyst David E. Fintzen, who recently upgraded the carrier to neutral, estimates that Southwest has taken about $1.6 billion in revenue away from other U.S. airlines since the peak of the industry’s last cycle. Fintzen and Credit Suisse’s Julie Yates say the Dallas carrier could do better in a recession than airlines that depend more on high-end business travel.
Southwest is in drawn-out negotiations with unions that could lead to higher labour expenses and reduce its cost advantage against American, Delta and United. Southwest will try to offset higher wages with better productivity.
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