UPDATE 2-Southwest Air profit falls as costs weigh; shares down
* Adjusted per-share profit 38 cents in line with estimate
Total costs up despite lower fuel expenses
* Shares fall 2.8 percent
July 25 (Reuters) - Southwest Airlines Co said on Thursday that quarterly profit edged down as costs increased and U.S. spending curbs hurt demand, and its shares fell nearly 3 percent.
Dallas-based Southwest has added seats to planes and raised baggage fees at its AirTran subsidiary to boost revenue and keep profits flowing, but it faces significant cost pressures. Of the major U.S. airlines, Southwest is the only one that has not restructured in bankruptcy, and its cost advantage against bigger rivals has narrowed.
At the same time, Southwest faces competition for passengers from newer entrants that have a low-cost focus, such as Spirit Airlines.
"The AirTran transition hasn't gone exactly as it would have hoped," said Robert Mann, an airline consultant in Port Washington, New York. He said Southwest was grappling with technology issues, particularly as it looks to transition to a new reservations system.
Southwest said effects of U.S. government spending cutbacks and higher taxes hampered travel demand but added that unit revenue, a measure of how full planes are and pricing power, was running 3 percent higher in July from a year earlier. That measure, also known as passenger revenue per available seat mile, had fallen at Southwest in April, May and June.
"Government travel is off significantly, and I would certainly attribute that to the federal budget cuts," Chief Executive Gary Kelly told the CNBC network on Thursday.
Net income fell to $224 million, or 31 cents a share, in the second quarter, from $228 million, or 30 cents a share, a year earlier.
There were special items including costs tied to integrating AirTran, which was acquired in 2011. Excluding items, profit was 38 cents a share, in line with expectations of analysts on average, according to Thomson Reuters I/B/E/S.
Quarterly revenue rose less than 1 percent to $4.64 billion, compared with $4.66 billion expected by analysts. Operating expenses rose 1.3 percent, even as fuel and oil costs fell 5.6 percent.
Shares of Southwest fell 2.8 percent to $13.38 in morning trading.