Southwest Airlines' profits down 40% as demand softens

Posted Thursday, Apr. 25, 2013  comments  Print Reprints

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Higher fares, new fees and lower fuel costs buoyed Southwest Airlines to a $59 million profit in the first quarter.

However, the Dallas-based carrier's profits were down 40 percent from the same period last year as federal budget cuts softened demand in March.

Chief Executive Gary Kelly said bookings have rebounded for May and June after a weak March and April.

He hopes Southwest will have a strong second quarter even as furloughs of air traffic controllers by the Federal Aviation Administration have delayed thousands of flights nationwide.

"There is much frustration with the FAA's implementation of sequestration," Kelly said, adding that the vast majority of Southwest flights have not been delayed.

Revenue grew 2.3 percent to $4.08 billion in the first quarter even as the airline kept capacity relatively flat, up only 0.6 percent.

Fuel costs dropped 4.4 percent to $3.29 per gallon, from $3.44 a year ago.

The airline expects fuel costs to continue to decline, to a range of $3 to $3.05 per gallon in the second quarter.

Excluding one-time accounting charges, which included gains from fuel hedging, net income was $53 million, or 7 cents per share, beating Wall Street estimates of 2 cents per share, according to First Call.

Shares of Southwest (ticker: LUV) were unchanged Thursday, closing at $13.42.

The carrier also announced a new "no show" policy that will start with fares bought after May 10 for travel on or after Sept. 13.

If passengers who bought a cheaper, nonrefundable Wanna Get Away or Ding fare do not show up for their flight, they will lose the value of the unused portion of their itinerary, and the rest of the reservation will be canceled.

Southwest, which has heavily promoted its policy of not charging for the first two checked bags, will stick with it even as it adds other fees, such as one for early boarding.

Its latest ad campaign does not tout the "Bags Fly Free" angle.

"Our brand includes bags fly free, period," Kelly told analysts when asked about the policy.

"All of the research we have today shows we would negatively impact our revenues by $1 billion a year if we started charging for bags."

The carrier also plans to de-hub its AirTran subsidiary's Atlanta operations this year. Southwest bought AirTran Airways in 2011.

Although it will maintain the same number of flights -- 170 to 175 daily departures -- the airline will spread departure times throughout the day instead of clumping them in early-morning and late-evening waves.

Andrea Ahles, 817-390-7631

Twitter: @Sky_Talk

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