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Southwest 2Q profit soars, but cheaper fares sting

🕐 2 min read

DALLAS (AP) — Record revenue and cheaper fuel pushed Southwest Airlines’ second-quarter profit up by 35 percent, to $820 million.

That was short of Wall Street expectations, however, and Southwest predicted Thursday that a key revenue figure will turn down in the July-through-September quarter. That suggests that lower average fares are hurting even the original low-fare carrier.

Southwest shares fell sharply in trading before the opening bell.

The carrier released quarterly results a day after a massive technology failure led to hundreds of canceled and delayed flights. A spokesman said all systems were fixed by early Thursday morning, but the airline is still bracing for long lines Thursday as customers who were stranded during the outage will try to find new flights.

Southwest Airlines Co., the nation’s fourth-biggest airline, said revenue in the second quarter increased 5 percent to $5.38 billion, with about half the increase due to a new credit card deal it signed with Chase Bank last year.

Expenses rose just 2 percent. Labor costs crept higher, but the airline spent 10 percent less on jet fuel, a savings of $102 million compared with the same period last year.

That helped Southwest boost net income to $820 million from $608 million a year ago.

Excluding one-time charges and gains, profit was $757 million, or $1.19 per share, which is 2 cents shy of Wall Street expectations, according to analysts polled by FactSet. Analysts polled by Zacks Investment Research forecast $1.22 per share, or 3 cents more than Southwest posted.

Potentially more troublesome to investors, Southwest predicted that a closely watched figure, revenue for every seat flown one mile, will decline between 3 percent and 4 percent in the third quarter. That is partly because it will have been one year since the Chase agreements, so there will not be a dramatic year-over-year increase from the credit-card deal.

Chairman and CEO Gary Kelly credited record revenue and lower fuel prices for the increase in profit.

Southwest said it set records for percentage of seats sold each month in the quarter. Kelly said that demand has remained “solid” in July but prices on tickets sold close to the day of travel “have softened in recent weeks.”

That type of ticket is often bought by business travelers, and in recent days Delta Air Lines and United Airlines have reported flat demand from corporate customers.

In trading before the opening bell, Southwest shares tumbled $2.13, or 5.1 percent, to $39.90.The shares have decreased slightly more than 2 percent since the beginning of the year, while the Standard & Poor’s 500 index has increased slightly more than 6 percent. The stock has risen 23 percent in the last 12 months.

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