By Angela Chen
Southwest Airlines Co. said Thursday that dramatically cheaper
fuel prices helped its earnings decline less than expected in the
fourth quarter and should continue driving its profits this
year.
Earnings beat analyst expectations, sending shares up 5% in
premarket trading.
The sharp drop-off in oil prices has been generally favorable to
airlines, making up for struggles late last year amid concerns
about the Ebola outbreak, signs of global economic wobbles and
worries that air carriers were adding too many seats on
international flights. Though some airlines are less affected due
to agreements called fuel hedges, Southwest is exposed to 80% of
the fall in oil prices.
For the company, this means that fourth-quarter unit costs were
at $2.62 a gallon, down 3.8% from the year earlier. For the current
quarter, Southwest sees fuel costs dipping even lower to $1.90 a
gallon. This is expected to result in about $500 million savings in
fuel costs for the first quarter alone, Chief Executive Gary Kelly
said. However, the latest quarter did include $246 million in
mark-to-market losses from fuel hedges. Rival United Continental
Co. recorded a $225 million loss from fuel hedges on Thursday.
Overall, Southwest reported a profit of $190 million, or 28 a
share, down from $212 million, or 30 cents a share, a year earlier.
Excluding special items, earnings were 59 cents a share, up from 33
cents a share a year earlier.
Revenue grew 4.5% to $4.63 billion.
Analysts polled by Thomson Reuters had called for earnings of 55
cents a share on revenue of $4.6 billion.
Southwest's revenue per available seat mile, a key measure of
performance for the airline industry, edged up 2.6% from a year
earlier.
Traffic during the quarter increased 4.3% and capacity rose
2.4%. The portion of seats filled, or load factor, grew to 82% from
80.4%.
For the current quarter, Southwest expects revenue per seat mile
to grow 1% to 2%.
Rival Delta Air Lines Inc. reported earlier this week that low
gas prices also lifted its profits for the fourth quarter, while
United Continental said Thursday that its profit declined in the
fourth quarter amid losses on fuel hedges and increased severance
and benefit costs.
Shares of Southwest have been up about 92% in the past 12 months
through Wednesday's close.
Write to Angela Chen at angela.chen@dowjones.com
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