Southwest Books Lower Profits and Higher Revenue in the Fourth Quarter

Andrew Klips |

BA, AMR, LUV, Southwest, Boeing, 737 MAX, jet fuel, costs, margins, efficiency, fuel efficiency, engine, bankruptcySouthwest Airlines Co. (LUV) on Thursday reported lower profits during the fourth quarter as the largest carrier of U.S passengers felt the impact of rising fuel and labor costs that could not be offset by higher prices for flights.

The Dallas, Texas-based company said fourth quarter net income was $78 million, or 11 cents per share, down from $152 million, or 20 cents per share, in the year prior quarter.  Excluding special items, such as fuel contracts, net income totaled $65 million, or 9 cents per share, comparable figures to the same quarter of 2011.

Revenue ticked up 1.6 percent to $4.17 billion from $4.11 billion in the year prior quarter.

Analysts were expecting revenue of $4.21 billion and earnings of 8 cents per share.

The rise in revenue was counterbalanced by a 3.1 percent hike in expenses.  Total operating expenses increased to $4.08 billion, including a 4.5 rise in wages, salaries and benefits to $1.2 billion from $1.15 billion in Q4 2011.  Fuel and oil costs grew by 0.7 percent to $1.51 billion while maintenance materials and repair expenses rose by 13 percent to $270 million.

Typically, a leading low-fare airline scuttling around North America, Southwest is employing plans disclosed last October to thwart rising costs and bolster revenue as it works to complete its integrations of AirTran by the end of 2014; giving Southwest an international presence.  Southwest agreed to buy AirTran Holdings in September 2010 for $1.4 billion and closed the transaction last May.

The average passenger fare increased from $140.38 in the fourth quarter of 2011 to $148.02 in the latest quarter.  The number of passengers, however, slipped from 33.51 million to 32.70 million in the comparable quarters.

Excluding special items, full year 2012 net income totaled $417 million, or 56 cents per share, up from $330 million, or 43 cents per share for 2011.  Total operating revenue for 2012 increased 9.1 percent from 2011 to $17.1 billion.

"2012 was a year of tremendous progress.  Our profits (excluding special items) of $417 million grew 26 percent as compared to 2011 and represented our 40th consecutive year of profitability.  Without a doubt, this is a remarkable feat and a record unmatched in the airline industry,” said Gary C. Kelly, Chairman, President, and Chief Executive Officer of Southwest.

Kelly added that he expects “a year-over-year improvement in January 2013 passenger unit revenues in the two to three percent range.”

Shares of LUV closed trading on Wednesday at $11.36 (down by 1 percent), as investors apparently didn’t expect much from the earnings report Thursday morning.  The stock price has been on a run since mid-November when the stock was range bound between $9.30 and $8.70 before breaking free and climbing to 52-week highs of $11.60 on Tuesday.

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Companies

Symbol Name Price Change % Volume
BANCPRD Banc of California Inc n/a n/a n/a 0
LUV Southwest Airlines Company 37.24 -0.09 -0.24 4,628,200

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