Southwest Airlines posts profit in second quarter

By Richard N. Velotta

Published Tuesday, July 21, 2009 | 7:21 a.m.

Updated Tuesday, July 21, 2009 | 9:48 a.m.

2Q overview

+ By passenger volume, Southwest is the No. 1 carrier at McCarran International Airport.

- Southwest paid a half-cent dividend to shareholders on June 8.

+ Southwest recently began service to New York’s LaGuardia International Airport and later this year will begin flights to Boston and Milwaukee. Nonstop flights between Las Vegas and Milwaukee will begin Nov. 1.

+ Southwest shares rose 6 percent in the second quarter.

+ Analysts had projected earnings of 7 cents per share.

-“Demand for business travel remains weak and we continue to stimulate traffic with more discounted and promotional fares. Unless demand rebounds significantly, we expect third quarter 2009 unit revenues to decline year-over-year more than the second quarter decline of 6 percent due to more difficult comparisons.” – Southwest CEO Gary Kelly

- July 20 stock price: $7.30 (52-week high: $16.77).

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Dallas-based Southwest Airlines, the market leader at McCarran International Airport, reported a profitable second quarter, breaking a string of three straight quarters of losses, the company reported today.

But airline executives warned that weak travel demand, particularly among business travelers, could prevent the company from being profitable in the third quarter.

Southwest, which averages 206 daily flights to and from Las Vegas and has a 40 percent market share at McCarran, reported earnings of $54 million, 7 cents a share, on revenue of $2.6 billion. That compares with earnings of $321 million, 44 cents a share, on revenue of $2.9 billion in the same quarter a year earlier.

“Demand for business travel remains weak and we continue to stimulate traffic with more discounted and promotional fares,” said Southwest CEO Gary Kelly. “Unless demand rebounds significantly, we expect third quarter 2009 unit revenues to decline year-over-year more than the second quarter decline of 6 percent due to more difficult comparisons.”

Kelly said the decline in business travel, which he said has fallen at “an alarming rate,” is recession-driven and not anything related to policies instituted by the airline.

Like other airlines, Southwest has cut capacity in a bid to trim expenses and match available seats to demand. In Las Vegas, Southwest is offering 5.1 percent fewer flights, and nationwide the airline has cut between 5 and 6 percent of its flights. Since last year, Southwest has had a net cut of 300 flights a day.

But the airline has expanded to new markets and added flights in some key growth cities. Southwest began flights to Minneapolis in March and to New York’s LaGuardia Airport last month and will add Boston later this summer and Milwaukee in November. The company also increased flights in San Francisco and Denver.

In addition to weathering a decline in business travel, airlines continue to operate in a volatile fuel market.

Southwest chief financial officer Laura Wright, who said the airline is in “the worst unit revenue decline we’ve experienced since the post-9/11 environment,” said that while fuel costs less than it did a year ago, there was a $20-per-barrel swing in oil costs in the second quarter alone. Oil was priced at $50 a barrel in April and climbed to $70 a barrel in June before retreating in the last couple of weeks.

Wright also said the airline estimated that it suffered a $20 million revenue hit during the quarter as a result of fears of the swine flu virus.

Southwest is cutting its work force systemwide and said that 1,400 workers – 4 percent of its employees – accepted early-out offers of cash and travel benefits.