Southwest earns 1Q profit; eyes 2015 international flights from HOU

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Published: April 20, 2012

Southwest Airlines 737-300. By Rob Finlayson

Southwest Airlines (SWA), which had warned of a first-quarter loss, posted net income of $ 98 million for the period, improved over a $ 5 million net profit in the 2011 March quarter.

However, the low-cost carrier (LCC) conceded that the net result benefited from $ 116 million in favorable special items and that it incurred an $ 18 million net loss for the three months excluding special items, reversed from $ 20 million in net income on a similar basis in the prior-year period. SWA senior VP-finance and CFO Laura Wright last month had projected a first-quarter deficit for the Dallas-based airline ( ATW Daily News, March 14 ).

On a separate front, SWA and Amadeus IT Group announced a contract Thursday for Amadeus’ Altea reservations solution, which would support international service. “Now that the contract is finalized, the two companies will work closely together to implement Amadeus’ technology to allow Southwest to operate international flights in 2014,” the companies said in a joint statement.

Speaking to reporters and analysts, chairman, president and CEO Gary Kelly said SWA sees a “significant opportunity to operate international service out of Houston Hobby” (HOU). He added that the carrier is going through the regulatory process to begin international flights from HOU starting in 2015, and is also in close contact with HOU and the Houston city government about the plans.

The contract also allows SWA to convert its domestic business to Amadeus in the future. SWA is now operating limited international flights owing to its acquisition of AirTran Airways ( ATW Daily News, March 2 ), but the contract with Amadeus allows for more large-scale, SWA-branded international flying.

On a combined, pro-forma basis (including AirTran’s results), SWA generated $ 3.99 billion in first-quarter revenue, up 5.9% year-over-year. Expenses increased 7.7% to $ 3.97 billion, including a 16.7% rise in fuel costs to $ 1.51 billion. Operating income was $ 22 million, down 74.1% from pro-forma operating income of $ 85 million in the 2011 first quarter.

“The decline in operating income was driven by a $ 478 million increase in our first quarter economic fuel costs compared to first quarter last year,” Kelly said. “Energy price increases continue to pressure costs.”

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