Wednesday, Jan. 19, 2005 | 10:48 a.m.
Southwest Airlines, the busiest commercial passenger carrier at McCarran International Airport, continued to be profitable, but it showed a 15 percent decrease in earnings in the fourth quarter, the company said today.
The Dallas-based airline, which McCarran says has 190 flights to 48 nonstop destinations and has 35.5 percent of the 73,810 seats into the Las Vegas market daily, cited higher jet fuel costs as the reason for the decline.
The company said net income fell to $56 million, or 7 cents a share, from $66 million, or 8 cents, a year earlier. The airline had expected to earn 8 cents, the average forecast of analysts in a Thomson Financial survey. Sales rose 9.1 percent to $1.66 billion from $1.52 billion.
Overall costs rose 9.6 percent to $1.54 billion, including a 29 percent increase in spending for fuel. That was about half of the 64 percent rise in fuel costs for delivery in New York harbor because the carrier has purchased hedges, or financial instruments used to help flatten price spikes. Hedges saved about $174 million in fuel expense in the quarter, Southwest said.
"In light of industry challenges, this is a good quarter for Southwest, and we think investors should not make too much of the 1-cent miss" from forecasts, Lehman Brothers analyst Gary Chase said. "While cost performance will remain a critical element of the Southwest story, we suspect concerns that the company had lost its way on the cost side will begin to fade."
Southwest is the only major U.S. airline to remain profitable since the 2001 terrorist attacks and it hasn't had a quarterly loss since 1991.
Its shares fell 38 cents to $14.62 today as of 9:34 a.m. in New York Stock Exchange composite trading. They had fallen 3.7 percent in the past 12 months.
Also today, Northwest Airlines Corp., the fourth-largest U.S. carrier, reported a fourth-quarter loss of $412 million, or $4.84 a share. AMR Corp.'s American Airlines, the world's largest carrier, said its quarterly loss widened to $387 million, or $2.40 a share.
Both airlines have flights to and from McCarran but aren't big players in the Las Vegas market.
The largest U.S. airlines are expected to lose $2.3 billion this quarter, according to Michael Linenberg, a Merrill Lynch & Co. analyst. The carriers have had combined losses of more than $30 billion since the start of 2001.
In a conference call with analysts today, Southwest Chief Executive Gary Kelly offered no new details on the airline's previously announced new service to Pittsburgh or its new code share agreement with ATA Airlines, which begins Feb. 4.
The airline plans to announce its schedules and fares for Pittsburgh flights soon and hasn't indicated whether nonstop flights from McCarran are forthcoming.
Kelly said the airline is evaluating its options on adding another city on its route later this year.
The airline is expanding with a net of 29 new aircraft in 2005 and late last year said it is exercising three Boeing 737-700 options for 2006 delivery, bringing firm orders and options to 26 and eight, respectively.
Kelly said it isn't likely Southwest would enter any new code share agreements with other airlines anytime soon, stating that its new arrangement with ATA, which is expected to yield $50 million a year in revenue for Southwest, was an opportunity that grew out of the company's desire to expand in Chicago.
"What we wanted was six gates for Christmas at Midway Airport," Kelly said, adding that the airline doesn't want to confuse airport partners or customers with multiple code share deals.
The agreement with ATA affects Las Vegas in that Southwest and ATA customers could fly to and from McCarran to six cities with a stop and change of planes at Midway Airport. Las Vegas has been named as a second possible connecting point for future Southwest-ATA code share flights.
Kelly also addressed several other matters on the world's largest discount airline's plate.
This week's phasing out of the company's last 200 series Boeing 737 jets isn't expected to affect future earnings, even though the more modern replacements are more fuel efficient since the number of replaced jets is minimal. However, first-quarter revenue is expected to increase over last year with Easter and spring break travel occurring in March instead of April.
Kelly also said the airline would continue to work for the repeal of the Wright Amendment, a federal law that prevents Southwest from offering nonstop flights between Dallas' Love Field and Las Vegas. The airline excluded ATA code share flights to Dallas-Fort Worth International Airport to keep pressure on efforts to repeal the measure.
And, Kelly said the airline still isn't in any hurry to consider assigned seating on its flights because whenever the issue is raised publicly, many customers come forth and say they don't want the airline to change its open-seating policy.
"We are growing, we are continuing to be profitable," Kelly said in an interview on Bloomberg Television. "We are not discouraged about our future at all, we're not disappointed about our results. Any way you look at it, the results didn't improve that much from last year, and we just can't be satisfied with that."
Southwest's unit costs, or the cost to fly a seat one mile, declined 1.3 percent even with the higher spending for fuel.
Southwest expects to report a first-quarter profit, Kelly said. It expects unit costs, excluding fuel, to decline from first quarter 2004's unit costs of 6.57 cents on the same basis. Fourth-quarter unit costs, excluding fuel, were 6.22 cents.
Southwest's average fare in the fourth quarter declined 0.5 percent to $89.59 and traffic, or miles flown by paying passengers, rose 13 percent.
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