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Southwest Quarterly Profit Climbs as Fuel Prices Decline

Southwest Airlines Co., the biggest low-fare carrier, said second-quarter profit rose 42 percent as record revenue muted higher spending for fuel.

The profit of $228 million, or 30 cents a share, increased from $161 million, or 21 cents, a year earlier, the Dallas-based airline said in a statement today. Adjusted earnings of 36 cents a share, excluding $45 million in one-time items, exceeded the 33-cent average of analysts’ estimates.

While passenger traffic was unchanged, Southwest’s average fare rose 4.9 percent, easing the effects of a 3.3 percent increase in jet fuel costs. In addition to sales, the company set records for net income, operating income and revenue from each seat flown a mile.

“The goal this year is clearly to have record earnings,” Chief Executive Officer Gary Kelly said in an interview. “This at least puts us in a position where that is an achievable target.”

Revenue climbed 4.7 percent to $4.62 billion, beating the average analysts’ estimate of $4.59 billion.

Kelly reiterated that Southwest plans no fleet expansion through at least 2013 as it works to attain a 15 percent return on invested capital. The airline, which bought AirTran Holdings Inc. in May 2011, earlier deferred deliveries of 30 jets by about four years to help curb growth and reduce capital spending from this year to 2014 by $1 billion.

Fragile Economy

“The fundamentals are very strong and getting a lot stronger,” said Michael Derchin, an analyst with CRT Capital Group LLC. “They’ve got the strongest balance sheet in the industry and their cash exceeds their debt.”

Southwest fell 2.9 percent to $9.15 at 4:15 p.m. in New York. The shares have gained 6.9 percent this year.

The airline is monitoring the “fragile economic environment,” although it has not yet seen a decline in demand, Kelly said.

“It doesn’t feel to me like our revenue trends are strengthening in the third quarter,” he said. “I wouldn’t be surprised if growth didn’t slow a little bit. Business travel was very solid in the second quarter.”

Download: Earnings

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