Key revenue measure stops climbing at Southwest

DALLAS -- Southwest Airlines Co. was left at the gate when other airline stocks rose strongly on Friday morning after the company gave a weak report on September traffic and revenue trends.

THE SPARK: Southwest, which also operates AirTran Airways, said September traffic dropped by 2.1 percent and a key revenue measure fell by 2 to 3 percent.

Passenger revenue for every seat flown one mile _ an arcane statistic for travelers but watched closely by airline investors _ had been rising slowly over the summer. But with the September drop, it will rise just 1 percent for the entire third quarter. That's less than Southwest was predicting just a month ago.

The disappointing revenue number is likely the result of fewer fare increases this year. Southwest raised prices eight times last year to offset rising fuel prices but only about half as often this year.

THE ANALYSIS: J.P. Morgan analyst Jamie Baker said Southwest broke away from other airlines by suggesting that its third-quarter financial results could be below Wall Street's expectations.

There were already questions about air travel demand and whether it would match year-ago levels. "But we didn't expect September to be so tough for Southwest," Baker wrote in a note to clients, citing the key revenue measure.

Baker lowered his forecast of Southwest's third-quarter earnings to 8 cents per share from 11 cents.

Ray Neidl, an analyst for Maxim Group LLC, said Southwest faces an uncertain economy and narrower challenges including the need to control costs and successfully fold AirTran into the Southwest brand. He said Southwest was wise to reduce flying as it adapts to changes in the airline industry.

Neidl still cut his prediction for third-quarter profit, to 13 cents per share from 21 cents per share.

Analysts surveyed by FactSet were expecting Dallas-based Southwest to earn 16 cents per share in the quarter.

SHARE ACTION: In midday trading, Southwest shares were unchanged at $9.10. In comparison, shares of rivals United Continental Holdings Inc., Delta Air Lines Inc. and US Airways Group Inc. were all up more than 1 percent.