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Southwest posts small profit after weak September

JOSHUA FREED, AP Airlines Writer
Thursday, 18 Oct 2012 | 7:24 AM ET

Southwest Airlines eked out a small third-quarter profit in spite of a September slowdown, the company said on Thursday.

Traffic at all the big airlines fell last month. September is traditionally when vacationers wrap up summer travel by Labor Day, and business travelers get back in the air.

Southwest has been using a mix of fare increases and sales to try to get its prices to a level that travelers will pay. Last month, fares paid by business travelers were soft, CEO Gary Kelly said. Business travelers tend to pay more because they usually buy tickets closer to their departure date than vacationers.

"Business travelers were there, but it felt like we needed a little bit more aggressive pricing to entice them," he said on CNBC.

It's possible the slowdown is over. Kelly said a key measure of revenue is 4 percent higher this month than in October 2011.

While Southwest rolls out the occasional sale to fill planes _ they were 82.1 percent full, a record for the quarter _ it has also been aggressive about trying to raise fares in recent months.

It launched two of the three fare increases that stuck during the quarter, according to a tally by Rick Seaney, CEO of air-travel website FareCompare.com.

And when an attempted increase by United Airlines last week faltered, Southwest came along and revived it. Seaney wrote that it was the first time he remembers a low-cost airline reviving a failed domestic price hike in almost a decade of watching fares.

Airlines have needed to raise fares to offset rising fuel costs. Southwest paid $3.16 per gallon for jet fuel during the recent quarter. It expects to pay an all-time high of $3.45 per gallon in the fourth quarter. That includes an expense of 9 cents per gallon for derivative contracts, known as fuel hedges, that may turn out to be money-losers based on current prices.

Kelly said Southwest is "falling short" of its financial goals this year. He also said Southwest will "need to more aggressively control costs in the next year." One step could be to halt new hiring, which would cause the number of workers to shrink. Kelly doesn't plan layoffs or furloughs.

The CEO also said he's looking for ways to boost revenue next year, although he didn't want to share details.

Southwest earned $16 million for the quarter that ended Sept. 30, or 2 cents per share. Not counting special items, it would have earned $97 million, or 13 cents per share. That's a penny per share more than expected by analysts surveyed by FactSet.

During the same period last year it lost $140 million, or 18 cents per share.

Revenue was the same as a year ago, at $4.31 billion. Analysts had expected $4.35 billion.

Southwest is still working to absorb AirTran, which it bought last year. Nine AirTran planes have been painted in Southwest's blue and orange.

However, it's still running what amounts to two separate airlines, with separate ticket sales and flight schedules. Southwest said it's on track to connect the networks of the two airlines early next year. At that point, travelers will be able to buy tickets that connect from, say, a Southwest flight to Atlanta, and then an AirTran flight on to Mexico City, where Southwest doesn't currently fly. Kelly said connecting the two route maps will create hundreds of new itineraries.

Southwest said it will convert AirTran markets in Charlotte, N.C., Flint, Mich., Portland, Maine, and Rochester, N.Y. to Southwest markets starting with its April schedule, to be published next week.

Southwest said it expects modest growth in flying capacity next year, although the first quarter is expected to be about the same as last year.

Shares of Dallas-based Southwest Airlines Co. rose 3 cents to close at $8.98.

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