Thursday, July 23, 2015

Southwest Airlines sees $500M drop in fuel costs, posts record earnings

Southwest Airlines Co.'s earnings increased more than 30 percent in the second quarter, setting a new record and topping analysts' expectations.

The Dallas-based carrier posted net income of $608 million from April through June, beating its previous best quarter of $465 million set in the same quarter last year.

Southwest (NYSE: LUV) reported revenues of $5.1 billion and adjusted earnings per share of $1.03, compared to revenue of $5.01 billion and EPS of $0.67 in the second quarter of 2014.

Southwest’s fuel costs dropped nearly $500 million to just over $1 billion, while other costs remained relatively flat, said Tammy Romo, chief financial officer.

The cheaper fuel equated to an overall cost savings of of 12 percent compared with April, May and June in 2014.

Demand remains strong for the low-cost carrier’s inexpensive fares, Romo said.    
“We’re seeing a continuation of healthy demand,” she said. “The economy feels pretty good now.”
Southwest's planes flew at a record 85 percent of capacity, despite a 7 percent increase in available seats. Dallas Love Field led the capacity growth, thanks to the lifting of flight restrictions under the Wright Amendment.
“In Dallas, we have lowered fares, we’ve added flights, we’ve stimulated demand and created meaningful competition, which is exactly what we said we were going to do,” Southwest CEO Gary Kelly said.
The load factor at Love was a whopping 94 percent.

“We’re very, very full, and very, very popular,” Kelly said.

Southwest added nine more daily non-stop flights from Love Field in April, bringing the total to 166. By August, the airline expects to have 180 weekday departures to 50 non-stop destinations.

Kelly said the airline’s growth at Love Field shows there are opportunities across the country, including at Houston Hobby Airport.

“Dallas Love Field is the poster child,” Kelly said. “There were a lot of critics that thought there wasn’t much opportunity to grow. They were wrong.”

Southwest will expand, but won’t add capacity recklessly, Kelly said. “We will very carefully manage our growth."

Kelly also said Southwest intends to launch a $500 million accelerated share repurchase program soon.

He said the airline will continue to fight for full control of a gate at Love Field now shared by Southwest and rival Delta.

“It’s not going to be easy,” Kelly said. “Our people are planning as best as they can. They will work really hard to accommodate our customers well, but it’s going to be really crowded.”

Kelly said Southwest is cooperating in a Department of Justice probe into whether airlines are colluding to keep capacity low and fares artificially high.

“We’re doing what they told us to do,” he said. “There has been a lot of talk by some and we don’t want to perpetuate that.”    

Bill Hethcock/ Dallas Business Journal