Southwest Airlines more than doubles profits in first quarter

Despite severe winter weather that canceled more than 7,500 flights, Southwest Airlines more than doubled profits in a record first quarter.

The Dallas-based air carrier, the busiest at McCarran International Airport, on Thursday reported net income of $152 million, 22 cents per share, on revenue of $4.17 billion for the quarter that ended March 31. That compares with earnings of $53 million, 7 cents a share, on revenue of $4.08 billion in the same quarter a year ago.

Southwest passenger counts were flat for the quarter, but that also resulted in less flying and burning fuel that cost less than a year ago. Management of fuel costs resulted in a reduction in costs for the company.

The airline reported having 676 aircraft in its fleet at the end of the quarter compared with 699 a year ago.

Fuel costs averaged $3.14 a gallon compared with $3.24 a year ago and the airline’s fuel hedging strategy reduced costs to an average $3.08 a gallon compared with $3.29 a year ago.

Southwest bumped up its number of Las Vegas flights from February to March and currently has an average 175 flights a day with 25,477 seats to the market, representing a 43 percent market share in Las Vegas.

In a conference call with investors and the news media, Southwest Chairman and CEO Gary Kelly said the company has exceeded expectations on five initiatives to integrate its AirTran subsidiary into Southwest.

Kelly said the gradual increase in the number of Boeing 737-800 jets into the fleet while retiring Boeing 717 jets used by AirTran has improved the airline’s operating efficiencies because the -800 series jets have a higher seating capacity, 175, and can be operated more efficiently than the smaller 717s.

“That has led to high load factors and lower unit costs,” Kelly said.

In addition, Southwest has begun placing split scimitar winglets on the wings of its -800 series jets. The company said the new winglet design improves fuel efficiency by 5.5 percent.

The company successfully rolled out its new international reservation system in late January, selling tickets to Caribbean destinations formerly flown by AirTran.

Southwest also has completed the installation of additional seats on the airline’s Boeing 737-700 fleet. The six additional seats per plane has increased capacity and profitability, particularly since that’s the largest portion of the fleet.

But Kelly cautioned that Southwest’s foray into international routes may not be the most important initiative on the airline’s immediate horizon.

The company has acquired additional gate capacity at New York’s LaGuardia Airport, Ronald Reagan Washington National Airport and at its base of operations, Love Field in Dallas.

All of those airports have had some form of government restriction on them in the past, but Southwest has scooped up some of the capacity when other carriers had to divest them as a result of mergers and acquisitions.

In Dallas, Southwest will no longer be restricted by regulations of the Wright Amendment in October and will expand its Dallas schedule, including nonstop routes to and from Las Vegas.

Tammy Romo, Southwest’s chief financial officer, said second-quarter bookings for the airline are strong.

“We’ve already seen part of the boost because the Easter and Passover holidays fell in April,” she said. “In addition, the Fourth of July holiday falls on a Friday this year, so we expect to see an increase in bookings leading up to that. May and June are also solid.”

Southwest currently flies to 96 destinations and Kelly said there are at least 50 destinations across North America that the company is considering for future growth.

“We want to grow, but we’re going to be cautious,” Kelly said. “Although a lot has been said about international, I still think it will be a relatively modest component for Southwest.”

Contact reporter Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow him on Twitter @RickVelotta.