Southwest Profit Beats Analysts' Estimates on Demand, Free Bags
“We experienced record traffic levels during the quarter, despite flat year-over-year capacity” Southwest Airlines CEO Gary Kelly said in a statement. Photographer: Daniel Acker/Bloomberg
Southwest Airlines Co.’s plan to keep its fleet size little changed through 2012 marks a record stretch without expansion as the carrier waits for business travel to pick up, Chief Executive Officer Gary Kelly said.
New jets will be added only to replace older aircraft being retired, with 10 Boeing Co. 737-700s arriving this year and 14 in 2011, Kelly, 55, said today in an interview. The Dallas-based company had 544 planes as of the end of June.
Business travel, prized in the industry because of last- minute ticket sales at higher prices, isn’t bouncing back as quickly as leisure, Kelly said by telephone. Last year marked the first time the world’s biggest discount carrier didn’t expand capacity since it began flying in 1971.
“We’ll be looking for opportunities to grow, and we’re still a growth company; it’s just that right now we don’t see the wisdom to be doing that,” Kelly said.
Seating capacity will remain little changed for each of the next two years, with any increase coming through more efficient management of the existing fleet such as additional night or weekend flights, Kelly said.
Southwest flies to 69 U.S. destinations and plans to add service to Charleston and Greenville, South Carolina, next year. No further additions are planned right now, Kelly said.
Options Exercised
The airline said today it was exercising options to buy 25 737s, valued at $1.7 billion based on list prices. Deliveries start in 2011. Some of the plane purchases planned for 2011 and 2012 include options converted into firm orders.
In 2009, Southwest made its first companywide voluntary buyout offer to trim costs. Along with a 5 percent reduction in capacity, that marked the end of a growth era for the company, whose burgeoning fleet and annual profits dating to 1973 set it apart from a U.S. industry ravaged by job cuts and bankruptcies.
U.S. airlines have parked more than 500 jets and eliminated more than 10,000 jobs since 2008 in response to higher fuel costs and plunging revenue in the recession.
Delta Air Lines Inc., the world’s largest carrier, said last week it would park 20 more jets next year. The Atlanta- based company has said it plans to spend $1 billion to upgrade its current fleet with more lie-flat seats and winglets rather than purchase new planes.
American, United
AMR Corp.’s American Airlines last week agreed to purchase 35 more Boeing 737s, and UAL Corp.’s United Airlines last year announced plans to buy 50 widebody jets, split between Boeing 787s and Airbus SAS A350s.
Southwest was unchanged at $12.01 at 4 p.m. in New York Stock Exchange composite trading. The shares have advanced 5.1 percent this year.
Southwest today reported a second-quarter profit that rose more than threefold, beating analysts’ estimates, as its policy of not charging for checked bags helped fill planes.
Earnings excluding some items climbed to $216 million, or 29 cents a share, compared with $59 million, or 8 cents, a year earlier, the airline said today in a statement. That beat the average 27-cent analysts’ estimate compiled by Bloomberg. Sales advanced 21 percent to $3.17 billion.
The nine largest U.S. carriers had a combined 4.5 percent increase in traffic for June, the best result since December 2008, according to data compiled by Bloomberg. Southwest is the country’s fifth-biggest.
Domestic Yields
Domestic yields, a measure of fares and travel, have risen each month this year after falling every month in 2009, according to the Air Transport Association. Yields for June were 15.27 cents per mile flown, less than the 16.02 cents for the same month of 2008, reflecting lower fares.
Southwest is the only major U.S. carrier that allows passengers to check two bags at no charge, a policy it says has helped woo travelers from rivals. The company’s planes flew at record capacity for 11 consecutive months until June.
The airline was founded in 1967 by former Chairman Herb Kelleher and his business partner Rollin King, who drew up the carrier’s original network -- a triangle between Dallas, Houston and San Antonio -- on a cocktail napkin. They had to battle competitors in Texas courts for the right to start flights, which began in 1971.
To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net
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