Southwest sees profit rise for 57th straight quarter

Thursday, July 14, 2005 | 10:57 a.m.

Southwest Airlines shook off the effect of high fuel prices hampering the aviation industry and turned in its 57th consecutive profitable quarter, Las Vegas' market-leading airline reported today.

Dallas-based Southwest, which has around 200 daily operations at McCarran International Airport, reported second-quarter earnings of $159 million, 20 cents a share, on revenue of $1.94 billion, compared with $113 million, 14 cents a share, on revenue of $1.72 billion for the same quarter a year earlier.

Analysts had expected earnings of 18 cents a share for the quarter ended June 30.

Southwest officials said today in a conference call to discuss earnings that the company already is seeing favorable results in the third quarter and that they have established a goal of improving earnings by 15 percent next year.

Although Las Vegas is Southwest's busiest station, growth at Chicago's Midway Airport and Philadelphia and robust sales in the company's new city, Pittsburgh, drove the company's successful quarter.

Southwest also announced today its schedule for service to Fort Myers, Fla., which begins Oct. 2. No Las Vegas nonstop flights are in the cards, but the airline said it would serve several destinations that would offer one-stop change-of-plane service to and from Las Vegas.

Gary Kelly, chief executive of the airline, said in the conference call this morning that the company's practice of hedging fuel prices significantly helped the bottom line. While jet fuel increased 24.5 percent over the same quarter last year, second-quarter unit costs decreased overall by 3.5 percent.

Under fuel hedging, Southwest gambles on the price of fuel going up, agreeing in advance to pay a set price. This year, 85 percent of the airline's fuel costs are hedged at $26 a barrel, while the market cost recently exceeded $60 a barrel. Next year, the airline anticipates paying more for fuel, since the company is 65 percent hedged at $32 a barrel.

"We can't control the economy and we can't control our competition," Kelly said in the conference call. "But we are pleased with the exceptional performance of our employees."

In order to meet the company's new performance goal, Kelly indicated that a lot would rest on continued growth in Chicago and Philadelphia, the development of Pittsburgh and Fort Myers and a wild card -- growth at its Dallas Love Field headquarters.

The company currently is waging a legislative battle to repeal the Wright Amendment, which restricts flights to and from the Dallas airport.

Southwest could also see some savings at its Seattle station, where the company is considering a move to Boeing Field from SeaTac International Airport. Kelly said the airline pays the highest fees per passenger in its system at that airport.