Southwest Airlines earnings soar, top analysts’ expectations

The Southwest Airlines profit machine keeps on churning.

The Dallas-based airline, the busiest carrier operating at McCarran International Airport, on Thursday reported record third-quarter earnings that beat Wall Street expectations.

Southwest reported net income of $329 million, 48 cents a share, on revenue of $4.8 billion for the quarter, which ended Sept. 30. That compares with income of $259 million, 37 cents a share, on revenue of $4.55 billion the same quarter a year earlier.

Excluding special items related to Southwest’s fuel-hedging program, Southwest netted $382 million, 55 cents a share, which was 2 cents a share ahead of Wall Street analysts’ projections.

With fuel costs lower now than in the third quarter, Southwest looks to capitalize again in the fourth quarter when the company also is expected to generate additional revenue with its new Dallas schedule. That schedule changed Oct. 13 with repeal of the Wright Amendment that prevented the airline from flying some nonstop routes to and from its Love Field headquarters.

Gary Kelly, Southwest’s chairman, president and CEO, said revenue was 5.6 percent greater than a year ago despite a 4 percent decline in the number of trips flown and a 2 percent decline in the number of seats flown.

Southwest is in the midst of integrating AirTran and will be retiring 88 Boeing 717 jets from the AirTran fleet.

Southwest is taking delivery of 36 Boeing 737-700 jets that seat 143 passengers and and 52 Boeing 737-800s that have 175 seats over the next two years.

Kelly said in Thursday’s conference call with analysts that the larger jets, used primarily on long-haul flights and at capacity-constrained airports, Southwest has been experiencing load factors of more than 90 percent.

Load factor is the percentage of paying customers occupying a plane. The higher loads and more efficient flying is one factor that has led to greater profitability.

Southwest also has been conscious of improving its on-time performance and has built longer wait times into its schedules to accommodate the larger aircraft.

“In Dallas, we’ve been hitting on all cylinders, publishing the right routes, taking the right marketing approach and the airport construction is finished and the place is beautiful,” Kelly said of Love Field, where Southwest will have 22 additional flights, including four daily to Las Vegas by early November.

Southwest also is capitalizing on new international routes to Mexico and the Caribbean. Right now, international flying represents just 1 percent of the airline’s capacity and Kelly said there would be modest growth in international next year.

That could change after Southwest opens its new international terminal at Houston’s Hobby Airport in late 2015. The airline already has announced its first foray into Central America next March with service from Baltimore to Costa Rica.

Kelly also told analysts that Southwest hasn’t experienced any dropoff in ticket sales as a result of increased fears related to the outbreak of ebola.

Shares of Southwest Airlines fell 95 cents, of 2.78 percent, to close at $33.25.

Contact reporter Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Find him on Twitter @RickVelotta.