Thursday, April 14, 2005 | 10:53 a.m.
Southwest Airlines did it again, reporting today that first-quarter earnings nearly tripled over the same period a year ago, easily beating analysts' estimates.
The Dallas-based low-cost carrier -- the busiest airline at McCarran International Airport -- cited higher March traffic, the successful management of fuel costs and cost-cutting measures to deliver a rarity in the airline industry: a profit.
The company said quarterly income climbed to $76 million, 9 cents a share, on revenue of $1.66 billion, compared with net income of $26 million, 3 cents a share, on revenue $1.48 billion for the January-March period a year ago.
A survey of analysts by Thomson Financial anticipated Southwest to earn 5 cents a share.
In early trading this morning, Southwest stock was up 20 cents to $14.92 on the New York Stock Exchange.
In a conference call to announce results this morning, the company announced that it would continue to grow, adding 11 new summer flights, including three to and from Las Vegas.
Beginning July 17, Southwest plans two new daily nonstop round trips between Las Vegas and San Diego, bringing the total in that market to 14 a day, and one additional daily nonstop round trip between Las Vegas and Oakland, bringing the total in that market to 13 a day. America West Airlines and its commuter partner Mesa Airlines, which operates as America West Express, are Southwest's only competitors in those markets.
Those flights are in addition to the previously announced start-up of service to Pittsburgh and a daily nonstop round trip between Pittsburgh International Airport and McCarran beginning May 4.
The airline will take delivery of 10 new Boeing 737 twin-engine jets with a capacity of 137 passengers each in the second quarter to accommodate the growth. Southwest is adding a net 29 new aircraft in 2005, resulting in more than 10 percent growth for the company. By the end of the year, the company will have close to 450 aircraft.
"We continue to navigate our way through a difficult industry environment," said Chief Financial Officer Laura Wright in today's conference call.
While Southwest is engaged in a successful fuel-hedging program that has kept the airline's costs lower than those of its rivals, the calendar played favorably in the airline's financial results.
Hedging is a strategy to buy fuel in advance at set prices. Southwest has the financial reserves available to purchase in advance -- an advantage most of its struggling rivals don't have.
Wright said the company reduced fuel and oil expenses by $155 million and recorded a related accounting gain of $27 million in the first quarter because the company was 86 percent hedged. The company is 83 percent hedged for the second quarter with crude oil prices capped at $26 a barrel and 85 percent hedged at the same price for the rest of 2005.
The company has developed additional hedging measures through 2009. Today crude oil was trading at $50.65 a barrel on the New York Mercantile market.
Southwest also benefitted from the timing of the Easter holiday, which fell in the first quarter this year and the second quarter a year ago. As a result, the company had a record 73.7 percent load factor in March. While the company said bookings for May and June are "satisfactory," Chief Executive Gary Kelly said today that this year's second quarter could fall short of 2004's April-June results.
Wright added that the airline's entire fleet of Boeing 737-700 jets completed its retrofit in March of blended winglets -- the extensions on the ends of wings that improve fuel efficiency.
During the quarter, the airline's fuel burn was reduced by 2.6 percent. Wright said that warmer temperatures and greater passenger loads in the summer months are bound to cut into fuel efficiency.
Southwest also is operating with fewer employees per aircraft now than it did at the beginning of the quarter with the addition of new jets and not hiring a proportionate number of workers.
In addition, bookings on southwest.com increased from 57 percent to 63 percent first quarter over first quarter, and that competitive capacity -- a measure of how many seats rivals are offering on routes competitive with Southwest -- is down 1 percent from the first to the second quarter.
Southwest, which began flying to Las Vegas in 1982, currently operates 195 flights a day by the airline's count from McCarran to 46 cities. McCarran, which uses a different counting method, says the airline has 191 daily flights, which is 36.4 percent of the Las Vegas market.
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