Southwest CEO: Q3 earnings beat due to fuel price drop

LUV CEO: Lower oil fuels profits
LUV CEO: Lower oil fuels profits

After years of shouldering crushing crude prices, the airline industry is finally getting a break, Southwest Airlines CEO Gary Kelly said Thursday, after his company reported third-quarter profit that topped analysts' expectations.

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"Obviously the big headline is a significant drop in fuel prices. That's what caused the surge in earnings year over year," he told CNBC's "Squawk Box."

Kelly pointed to energy prices as one of the prime culprits responsible for plunging the nation's air carriers into bankruptcy during the last 15 years. But while airlines are finally benefiting from fuel costs, they must remain vigilant, he said.

"You have very healthy airlines for about two years. Our challenge is trying to anticipate what will happen next, and especially with energy prices," he said.

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The U.S. budget carrier said it earned $584 million in the third quarter, a nearly 78 percent rise over the year prior. On an adjusted basis, profit was $623 million, or 94 cents per diluted share, compared with the average analyst estimate of 92 cents, according to Thomson Reuters.

Southwest also forecast that unit revenue, or sales relative to the total mileage of the seats it flies, would rise about 1 percent in the fourth quarter from the previous year, bucking a months-long decline in the metric.

When asked how the company will continue to improve earnings once comparisons with prior periods become tougher, Kelly said Southwest has capacity under development.

Much of the capacity that resulted from Southwest's integration with AirTran last year is relatively new, and the company is expanding in Dallas and recently opened a terminal in Houston, he said.

"Next year we won't be as aggressive, and a lot of these new markets will develop and that'll provide some nice tailwinds, too, to our revenues," he said.

Southwest reported that its capacity plans remain unchanged: It expects to increase available seat miles by about 7 percent in 2015 and about 5 percent to 6 percent in 2016 from the previous year.

—Reuters contributed to this story.