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Southwest Air 4th-Qtr Profit Rises on More Travelers (Update2)
Jan. 18 (Bloomberg) -- Southwest Airlines Co., the most- profitable U.S. carrier, said fourth-quarter profit rose 54 percent as the company flew more passengers and benefited from contracts that lessened the impact of higher fuel prices.
Net income rose to $86 million, or 10 cents a share, from $56 million, or 7 cents, a year earlier, the Dallas-based airline said in a statement today. Sales rose 20 percent to $1.99 billion. Southwest said costs this quarter will rise from a year ago as its fuel-cost protection becomes less effective and wage expenses increase.
Southwest's passenger traffic climbed 15 percent in the quarter while its average fare per mile rose 4.2 percent. Southwest, the only major U.S. carrier to remain profitable since the Sept. 11 terrorist attacks, has used low fares and frequent flights to win travelers from rivals such as US Airways Group Inc. while limiting rising fuel costs with hedges.
``Our big challenge, of course, is higher fuel costs,'' Chief Executive Officer Gary Kelly said in an interview. ``The big question is, will we have enough revenue growth to overtake these fuel-cost increases? We're set to do that.''
Southwest's profit was $98 million, or 12 cents a share, excluding an expense related to the way it accounts for fuel hedges. On that same basis, the year-ago profit was $68 million, or 8 cents.
Expectations
Southwest was expected to earn 14 cents a share, excluding any special costs or gains, by Glenn Engel, an analyst for Goldman, Sachs & Co. in New York. Engel's recommendations on Southwest would have produced a 16 percent one-year return for an investor through Jan. 17, according to data compiled by Bloomberg. The average forecast of 11 analysts surveyed by Thomson Financial was for earnings of 13 cents a share.
Southwest shares fell 6 cents to $15.81 at 8:09 a.m. before the start of New York Stock Exchange composite trading. The stock is up 5.8 percent in the past 12 months.
Southwest had hedges on 85 percent of the fuel it used in the fourth quarter, saving it $258 million, Kelly said. Even with the protection, Southwest's fuel cost rose 39 percent to $1.22 a gallon. Jet fuel for immediate delivery in New York harbor averaged $1.88 a gallon during the quarter.
Southwest's hedging protection falls to 75 percent at a crude oil price of about $36 a barrel this quarter. The airline has hedges covering at least a portion of its fuel needs through 2009. Crude oil for February delivery climbed to as high as $66.93 a barrel on the New York Mercantile Exchange this week, the highest since Sept. 30.
Position
``We're maintaining the financial health of the company,'' Kelly said in an interview. ``We have a shot at increasing our earnings this year with the fuel hedge we have in place, so I feel real good about how we're positioned for this year.''
Southwest's adoption of a new accounting method for stock options awarded to employees will increase compensation this quarter by about $20 million, pushing unit costs excluding fuel up from a year earlier, Kelly said.
An unexpected increase in 2005 fees assessed by the Transportation Security Administration early this month increased Southwest's fourth-quarter costs by $24 million. The airline ``plans to vigorously contest'' the increase, Kelly said.
Overall operating costs rose 19 percent to $1.82 billion. Labor spending increased 13 percent to $702 million, while the company's total fuel bill climbed 43 percent to $395 million. The cost to fly each seat a mile rose 11 percent.
Jan. 18 (Bloomberg) -- Southwest Airlines Co., the most- profitable U.S. carrier, said fourth-quarter profit rose 54 percent as the company flew more passengers and benefited from contracts that lessened the impact of higher fuel prices.
Net income rose to $86 million, or 10 cents a share, from $56 million, or 7 cents, a year earlier, the Dallas-based airline said in a statement today. Sales rose 20 percent to $1.99 billion. Southwest said costs this quarter will rise from a year ago as its fuel-cost protection becomes less effective and wage expenses increase.
Southwest's passenger traffic climbed 15 percent in the quarter while its average fare per mile rose 4.2 percent. Southwest, the only major U.S. carrier to remain profitable since the Sept. 11 terrorist attacks, has used low fares and frequent flights to win travelers from rivals such as US Airways Group Inc. while limiting rising fuel costs with hedges.
``Our big challenge, of course, is higher fuel costs,'' Chief Executive Officer Gary Kelly said in an interview. ``The big question is, will we have enough revenue growth to overtake these fuel-cost increases? We're set to do that.''
Southwest's profit was $98 million, or 12 cents a share, excluding an expense related to the way it accounts for fuel hedges. On that same basis, the year-ago profit was $68 million, or 8 cents.
Expectations
Southwest was expected to earn 14 cents a share, excluding any special costs or gains, by Glenn Engel, an analyst for Goldman, Sachs & Co. in New York. Engel's recommendations on Southwest would have produced a 16 percent one-year return for an investor through Jan. 17, according to data compiled by Bloomberg. The average forecast of 11 analysts surveyed by Thomson Financial was for earnings of 13 cents a share.
Southwest shares fell 6 cents to $15.81 at 8:09 a.m. before the start of New York Stock Exchange composite trading. The stock is up 5.8 percent in the past 12 months.
Southwest had hedges on 85 percent of the fuel it used in the fourth quarter, saving it $258 million, Kelly said. Even with the protection, Southwest's fuel cost rose 39 percent to $1.22 a gallon. Jet fuel for immediate delivery in New York harbor averaged $1.88 a gallon during the quarter.
Southwest's hedging protection falls to 75 percent at a crude oil price of about $36 a barrel this quarter. The airline has hedges covering at least a portion of its fuel needs through 2009. Crude oil for February delivery climbed to as high as $66.93 a barrel on the New York Mercantile Exchange this week, the highest since Sept. 30.
Position
``We're maintaining the financial health of the company,'' Kelly said in an interview. ``We have a shot at increasing our earnings this year with the fuel hedge we have in place, so I feel real good about how we're positioned for this year.''
Southwest's adoption of a new accounting method for stock options awarded to employees will increase compensation this quarter by about $20 million, pushing unit costs excluding fuel up from a year earlier, Kelly said.
An unexpected increase in 2005 fees assessed by the Transportation Security Administration early this month increased Southwest's fourth-quarter costs by $24 million. The airline ``plans to vigorously contest'' the increase, Kelly said.
Overall operating costs rose 19 percent to $1.82 billion. Labor spending increased 13 percent to $702 million, while the company's total fuel bill climbed 43 percent to $395 million. The cost to fly each seat a mile rose 11 percent.
