Southwest Quarterly Profit Up 42 Pct

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Published: July 20, 2012

Southwest Airlines announced a 42 percent rise in quarterly profit on Thursday, helped by higher fares and robust demand despite a fragile US economy.

Second-quarter net income was USD$ 228 million, compared with USD$ 161 million a year earlier.

Operating revenue grew nearly 12 percent to USD$ 4.62 billion, outpacing an increase of about 6 percent in operating expenses. Southwest’s average fare rose about 5 percent in the quarter to USD$ 150.31.

Fuel costs were USD$ 3.22 a gallon in the quarter, compared with USD$ 3.28 a year earlier. For the third quarter, Southwest projected fuel costs at USD$ 3.05 to USD$ 3.10 a gallon.

The second quarter is typically one of the strongest for airlines as travel picks up during warm months. Bankrupt American Airlines parent AMR reported a second-quarter profit before one-time items this week as increased business travel helped it report record quarterly revenue.

Airlines’ outlook could become more uncertain once travel slows down after the summer travel season.

“Southwest and others will readily admit that the economic backdrop is tenuous at best, but at this point they are not seeing any impact on business,” said Fred Lowrance, senior research analyst with Avondale Partners.

“The challenge is they can’t really give a good read on what it’s (demand) going to look like three or four months from now,” he added.

Over the past two years, in a bid to return to stability, US airlines have merged, raised ticket prices and shown discipline in cutting back flights to match demand.

“Southwest and the rest of the airlines are really focusing in on the routes that are higher-yielding and more profitable, and as a whole that has helped the industry,” said Matthew Jacob, an airline analyst with ITG Investment Research.

Southwest, which acquired discount rival AirTran last year, said it plans to keep 2012 seat capacity flat with 2011 levels. The carrier cautioned that growth in unit revenue – passenger revenue per available seat mile, an important airline measure – would be solid in the current quarter but would likely not exceed the second quarter’s 6 percent rise.

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