Southwest operating profit plummets 81% in Q1

Washington DC
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Southwest Airlines has posted an 81% fall in operating income to $22 million in the first quarter, as rising fuel expenses made a dent in profits.

Operating revenues rose 29% to $3.99 billion for the three months ended 31 March, while operating expenses rose 27% to $3.97 billion. Fuel expenses grew 46% to $1.5 billion during the quarter, says Southwest.

The carrier posted a net income of $98 million during the quarter, compared to a net income of $5 million during the corresponding period last year. Excluding special items, the carrier posted a net loss of $18 million during the quarter.

"Despite a modest loss, excluding special items, our first quarter results were notable, with outstanding revenue production and, except for jet fuel, better-than-expected operating costs," says Southwest's chairman, president and chief executive Gary Kelly.

"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. Energy price increases continue to pressure costs, which only serve to reinforce our commitment to eliminate waste and maximise efficiency throughout our company."

Southwest closed on its acquisition of AirTran in May 2011 and received a single operating certificate in the first quarter of this year. It is in the process of repainting AirTran aircraft in Southwest colours and will transition AirTran facilities to Southwest later this year, starting with Seattle and Des Moines.

"We have a tremendous amount of work ahead of us to complete the integration in 2014, but we are very pleased with our progress. In 2011, we produced $80 million in net pre-tax synergies, and we produced approximately $40 million in net pre-tax synergies in first quarter 2012, alone," says Kelly.

Southwest incurred $13 million in expenses before taxes associated with the AirTran acquisition in the first quarter, leading to a culmulative total of $155 million so far in integration costs. Southwest estimates this to reach about $500 million.