Southwest posts modest profit

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Southwest Airlines is reporting a profit of $11 million for the first quarter, a significant leap over a $91 million loss one year ago.

"We are extremely pleased to report a profitable start to the year, especially in this challenging economic environment exacerbated by persistently high energy costs," says Southwest CEO Gary Kelly.

Operating revenue increased 11.6% to $2.63 billion. Operating income for the first quarter was $54 million compared to an operating loss of $50 million for the same period a year ago. Operating expenses were up 7% to $2.6 billion.

At the end of the quarter, the carrier held an estimated $3 billion in cash and short term investments.

Fuel costs for the quarter were up 33% from a year ago, including a $44 million cash settlements for some of its fuel hedging contracts.

Company officials are expecting positive trends going forward but don't expect to increase overall capacity during 2010 by more than 1%.

"The real star in this quarter was Denver," Kelly says, pointing to a 20% increase in traffic. "This is just one example of how we are driving our revenue."

Southwest will have up to 144 daily departures from the Colorado airport by August.

St. Louis, Missouri is another target for growth, Kelly says, where the number of daily departures will be increased from 73 to 83. "They have a very strong year over year performance."

New service will begin to Panama City, Florida on 23 May with eight daily nonstops.

Southwest's business select product, which offers early boarding and seat selection, generated $21 million in the quarter, representing a 15% increase in passengers. The carrier also realized an aggregate $10 million in fees from pet transport, heavy bag fees and unaccompanied minor charges.

Kelly expressed caution about unbundling fees or the concept of a fuel surcharge. "One of the things I am concerned about is complexity. We want to be transparent to our customers."

Southwest will continue to focus on the fundamentals, he says. "We want to invest in the customer experience but I consider that investing in the basics. We won't foolishly rush to add frills and amenities that the customers don't care about."