Southwest Airlines' chief executive Gary Kelly rebukes concerns about the airline's economic health during a 25 July analyst call, insisting that Southwest remains financially sound despite problems with some underperforming routes.
His comments come in response to pointed questions from industry analyst Jamie Baker of J.P. Morgan, who suggested that cost savings resulting from Southwest's ongoing acquisition of AirTran Airways might be overshadowing problems at the Dallas-based carrier.
Earlier in the day, Southwest announced it earned an operating profit of $433 million during the second quarter of 2013, down 6% from the same period last year.
During the analyst call, Southwest's chief financial officer Tammy Romo says that the airline realized $95 million in savings during the quarter thanks to synergies from the AirTran merger.
That prompted Baker, speaking during the question and answer session, to note that Southwest's financial performance "seems to have gotten quite a bit worse year-over-year" if synergy savings are subtracted from second quarter profits.
"Doesn't this imply that the core operation at Southwest is rather ill?" asks Baker. "The second quarter numbers paint a very discouraging picture."
He adds, "Even with your synergy figures, everyone else got better in the second quarter, and you guys didn't."
In recent days, a number of US carriers have reported improving operating profits. They include legacy carriers fresh off or in the midst of mergers, like Delta Air Lines, United Airlines, US Airways and American Airlines.
Others carriers like Allegiant Air, Alaska Airlines and Spirit Airlines also reported higher operating profits.
New York-based JetBlue Airways, which some analysts see as a close peer to Southwest, reports its second quarter financials on 30 July.
Southwest, long considered the US low-cost king, has seen its costs creep higher in recent years and, like other carriers, has raised fares.
Its cost per available seat mile (CASM), was 12.85 cents in 2012, up from 10.24 in 2008, according to securities filings. Southwest's CASM straddles the industry, slightly lower than US mainline airlines and slightly higher than other low-cost carriers.
Southwest's Kelly responds to Baker, calling the question "fair" but disagreeing with Baker's conclusion.
"The base business, when we get all the noise [of the merger] out our same-store performance, looks quite good," he says. "If we didn't have all this noise, gosh, we would have really good results."
In addition, Kelly says Southwest and other US carriers have been negatively impacted by economic conditions. Across-the-board federal budget cuts - called the sequester - and high taxes have depressed consumer demand for travel, he says.
But Kelly concedes Southwest's route network needs works.
"There are some penalties in our current route system because we are still sub-optimised," he says. "We are underperforming in some markets."
"We need to continue to take this combined route network and optimise it," he adds.
In addition, Kelly says Southwest has been launching more new routes "than anybody would like."
New markets take time to develop, but Kelly expects good returns from new routes like Flint, Michigan to Baltimore and Houston (Hobby) to Washington National.
Baker then interrupts Kelly, noting that other airlines launch new routes "all the time."
"I've answered your question," Kelly curtly responds. "We have a lot of things going on that are good, and we have some things that are offsets, and we also have the economic drag."