Southwest Airlines posted a $190 million profit for the fourth quarter, a 10 percent drop when compared to the same period last year.
The Dallas-based carrier’s earnings were hurt by a $283 million charge related to its fuel-hedging contracts. Southwest typically hedges its fuel costs with the contracts acting as insurance against rising oil prices. However, when oil prices fall, the value of the contracts is lowered.
Falling oil prices, which are down 50 percent since September, will also save the company $500 million in the first quarter alone, Southwest said in its quarterly earnings release. It expects to pay $1.90 per gallon for jet fuel in the first quarter.
Revenues at Southwest grew 4.5 percent to $4.6 billion as the airline carried more passengers on longer-haul flights. With the expiration of the Wright Amendment restrictions at Dallas Love Field, Southwest added more long-haul domestic flights to its headquarters airport with 17 new destinations.
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“Customer demand remained strong, resulting in a record fourth quarter 2014 load factor of 82.0 percent,” said Southwest chief executive Gary Kelly. “We are pleased with our passenger unit revenue and booking trends thus far in January.”
Excluding one-time accounting charges, Southwest beat Wall Street analysts' earnings estimates. Shares of Southwest were up almost 5 percent in pre-market trading. The carrier will hold a conference call for investors to discuss the earnings at 11:30 a.m. CDT.
For the full year, Southwest reported $1.13 billion in profit, up 50 percent from 2013. This is the first time that Southwest has crossed the $1 billion mark in annual profits. Revenues also increased 5 percent to $18.6 billion.
Southwest employees earned $355 million in profit-sharing for the 2014 financial results, the company said, up 56 percent from 2013.