Southwest Airlines posts profit in fourth quarter

By Richard N. Velotta (contact)

Published Thursday, Jan. 21, 2010 | 6:57 a.m.

Updated Thursday, Jan. 21, 2010 | 10:37 a.m.

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

+ Analysts had projected earnings of 7 cents per share.

+ Southwest began nonstop service between Las Vegas and Milwaukee on Nov. 1.

+ Southwest will begin service to Panama Beach, Fla., including connecting flights from Las Vegas, in May.

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

+ Southwest had a 52-week high stock price of $11.79 on Jan. 5.

+ Jan. 20 stock price: $11.33.

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Dallas-based Southwest Airlines, the market leader at McCarran International Airport, today reported fourth-quarter earnings that gave the airline its 37th straight year of profitability.

“To report any profit in these times is a major accomplishment and I could not be more proud of our employees who worked so hard to finish the year strong with a fourth quarter and full-year profit,” said Southwest CEO Gary Kelly in a statement distributed with the reporting of earnings.

The $116 million earned in the quarter, which ended Dec. 31, gave Southwest $99 million for 2009 – 44.4 percent below what it made in 2008, but preserving a string of profitability unequaled in the airline industry.

Southwest, which averages 217 daily flights to and from Las Vegas and has a 40 percent market share at McCarran, reported earnings of $116 million, 16 cents a share, on revenue of $2.71 billion. That compares with a loss of $56 million, 8 cents a share, on revenue of $2.73 billion in the same quarter a year earlier.

Southwest’s results beat analysts’ estimates of 7 cents a share.

“It’s been a real roller coaster,” Kelly said in this morning’s earnings conference call. “It’s certainly better than we thought it would be six to eight months ago.”

Southwest had a record loads for a fourth quarter at 77.3 percent – up nearly 10 points from the fourth quarter of 2008 and the best since a 70.3 percent load factor in 2006. Load factors are the percentage of revenue passengers carried on a flight.

Kelly attributed the increase in loads to the company’s policy of not charging fees for checked baggage.

“We hope they (competitors) continue to raise their fees,” Kelly said. “We’ll be at 100 percent load factors. That would be great.”

Southwest had fewer flight cancellations in 2009 than 2008, according to U.S. Department of Transportation statistics. It also had the lowest percentage of customer complaints last year.

But the company also has had to fend off higher fuel costs and Kelly said prices continue to be volatile.

Kelly said the first quarter is promising with strong bookings fueled by several fare sales for the rest of January and February and March.

While Southwest officials say they don’t plan to grow capacity in 2010, the airline has a slight increase in flights to Las Vegas scheduled in March. Today, the company announced new flights for Denver and St. Louis. Flights begin to the airline’s newest destination, Panama City Beach, Fla., in May, but no non-stop routes to and from Las Vegas are planned.

With increased flights by summer, Denver will be Southwest’s fifth busiest market with an average 144 daily departures. Las Vegas continues to be Southwest’s busiest operation.

Southwest Chief Financial Officer Laura Wright said the company’s Early Bird early boarding program generated $13 million in the fourth quarter, the first full quarter it has been in operation since its introduction last summer.

Freight revenue was down 16 percent for the quarter due to the weak economy and she said much of the financial gains is due to schedule optimization – the elimination of 10 percent of the airline’s poorest performing flights while adding profitable routes.

Southwest won’t increase its fleet in 2010, Wright said.

Kelly said Southwest would focus on enhanced customer service initiatives in 2010 with a next-generation Rapid Rewards loyalty program coming by the end of the year or early 2011. The airline continues to work with WestJet and Volaris for code-share agreements to develop routes to Canada and Mexico. Southwest has no plans to fly its own aircraft internationally.

Another Texas airline reported earnings today.

Houston-based Continental Airlines posted a surprising profit for the fourth quarter. The airline, a minor player at McCarran, reported net income of $4 million, 3 cents a share, on revenue of $3.2 billion. It lost $96 million, 84 cents a share, in the same period a year earlier.