Southwest Airlines breaks losing string, posts $54M profit
10:50 PM CDT on Tuesday, July 21, 2009
By TERRY MAXON / The Dallas Morning News
tmaxon@dallasnews.com
Southwest Airlines Co. said Tuesday it earned $54 million in the second quarter, the Dallas carrier's first official profit after three quarters of losses.
However, the carrier said it cannot guarantee that it'll make money in the third quarter, typically one of the strongest for Southwest and the airline industry.
Southwest "is not immune to the effects of the debilitating economic environment," chairman and chief executive Gary Kelly warned. "Based on weak travel demand and fuel price volatility, we cannot predict a profitable third-quarter 2009."
The airline's losses in the second six months of 2008 were blamed on accounting charges as falling fuel prices caused Southwest's fuel hedges to work against it.
But by all measures, it lost money in the first quarter of 2009 – its first "real" loss in 18 years.
And if Southwest fails to post a profit in the current quarter, it will mark the first true third-quarter loss since 1972, when Southwest was barely a year old.
Going into Tuesday's earnings release, analysts' consensus was that Southwest would earn 6 cents a share in the third quarter, or about $44 million.
Southwest reported that its unit revenue, or revenue per seat mile flown, fell 6 percent in the second quarter compared with the same period in 2008.
Overall revenue dropped 9 percent, down $253 million to $2.62 billion.
Although business travel remains weak, Kelly and chief financial officer Laura Wright said unit revenue seems to have stabilized since April, with a slight uptick in July and possibly into August.
Kelly said the real concern is rising fuel prices.
"I don't think the worst is behind us," he said. "I think the worst is ahead of us, and it's primarily because of increased energy costs at this stage."
While the carrier can tolerate crude oil at $50 a barrel, Southwest is worried about an outlook for $70 crude oil through latter 2009 and in 2010.
"Those are very high energy prices in a recessionary environment and makes for a very difficult outlook," Kelly said.
He said 1,400 employees have opted for an early-out program, needed to reduce the workforce as operations shrink. Those employees will be leaving between July 31 and April 15, 2010, "based on the operational needs of particular work locations and departments," he said.
The $54 million in net income represented 7 cents a share. Excluding special items, Southwest earned $59 million or 8 cents a share; analysts' consensus was for a profit of 7 cents a share.
In the second quarter of 2008, Southwest earned $321 million, or 44 cents a share, on revenue of $2.87 billion.
Southwest shares lost 43 cents, or 5.9 percent, to close at $6.87 Tuesday.
Meanwhile, Continental Airlines Inc. said it lost $213 million, or $1.72 a share, on revenue of $3.13 billion, compared to a $5 million loss, or 5 cents a share, on revenue of $4.04 billion a year earlier. Excluding special items, Continental lost $169 million or $1.36 a share. Continental also said it is cutting 1,700 more jobs to reduce expenses.
UAL Corp., parent of United Airlines Inc., reported a $28 million profit, or 19 cents a share, on revenue of $4.02 billion. However, excluding special gains and charges, it lost $323 million, or $2.23 a share. A year earlier, UAL lost $2.74 billion, or $21.57 a share, on revenue of $5.37 billion, as it wrote off $2.28 billion in "good will" from its balance sheet.
