Southwest posts big profit increase

Tuesday, Jan. 16, 2001 | 11:20 a.m.

Southwest Airlines, the busiest air carrier at Las Vegas' McCarran International Airport, capitalized on its fleet growth and fuel hedging to post a 64.9 percent increase in fourth-quarter earnings.

The Dallas-based company, the nation's seventh largest airline, today reported earnings of $154.7 million, or 29 cents per share, on revenues of $1.47 billion for the quarter that ended Dec. 31. That compares with $93.8 million, or 18 cents per share, on revenues of $1.2 billion in the same quarter a year earlier.

A consensus of analysts surveyed by First Call/Thomson Financial had projected earnings per share of 28 cents.

"I'm not surprised, they always seem able to beat the estimates by a penny or two," said Ray Neidl, an analyst with ING Barings. "They had unusually accelerated growth in the fourth quarter."

Southwest's 2000 load factor of 70.5 percent was the highest annual load factor in the company's history.

"Our fourth quarter 2000 earnings were gratifying and a splendid way to end 2000, our 28th consecutive year of profitability," said Herb Kelleher, chairman, president and chief executive officer of Southwest. "In spite of high fuel prices and adverse weather conditions in December, our fourth quarter 2000 earnings increased 64.9 percent to $154.7 million."

Southwest also capitalized on labor instability that grounded the flights of some of their competitors in the quarter. Atlanta-based Delta Air Lines, which competes with Southwest in the southeastern United States, canceled flights in November and December because pilots refused to work overtime. That move already has led to the cancellation of six Delta flights to and from Las Vegas.

Southwest, meanwhile, is in the midst of its own negotiations with the Transport Workers Union of America for a new companywide contract with ramp workers.

Kelleher said the airline experienced strong customer demand, producing excellent yields.

"Our fourth quarter 2000 revenue performance was exceptional," Kelleher said. "Although we benefited somewhat from operational issues experienced by several of our airline competitors, the underlying demand for our low fares was strong."

Kelleher said Southwest had 32 more planes at the end of 2000 than it did at the end of 1999. It is accelerating the delivery of four new Boeing 737 jets from the first half of 2002 to the fourth quarter of 2001, meaning the company will take delivery of 25 and 27 planes in 2001 and 2002, respectively.

The company hedged fuel costs -- buying projected usage in advance at lower prices -- which minimized the impact of increased expenses that have devastated the finances of smaller carriers.

"We have hedged 80 percent of our projected 2001 fuel consumption at crude oil prices averaging $22 per barrel," Kelleher said. "Based on current traffic and revenue trends, we expect January's load factor and unit revenue to exceed year-ago levels. Bookings for February and March are also good."

Today, the company's stock was trading at $29.87, down 80 cents from Monday's closing price. The stock has been in a steady climb in the past year when the issue was at a 52-week low of $15 in February.

Kelleher said Southwest, which is adding service to West Palm Beach, Fla., later this month, will add one more city to the company's route in 2001. Many of Southwest's most recent additions have resulted in new flights to and from Las Vegas. For example, when Southwest added service to Buffalo, N.Y., last year, it added a nonstop flight to Las Vegas as part of the service.

The most recent addition of flights announced by the company last month included a new round-trip flight between Las Vegas and Chicago's Midway Airport.