Southwest Airlines reports dip in profits

An American Airlines jet waits to taxi as a Southwest Airlines jet takes off from McCarran International Airport in this 2009 file photo.

Dallas-based Southwest Airlines reported a decline in fourth-quarter profits on Thursday but still beat analysts' estimates while contending with high fuel costs.

The airline, the busiest operator at McCarran International Airport, reported net income of $66 million, 9 cents a share, on revenue of $4.11 billion for the quarter that ended Dec. 31. That compared with income of $115 million, 15 cents a share, on revenue of $3.11 billion in the same quarter a year ago.

The results included accounting of gains from fuel-hedging contracts, listed as special items. Still, the results beat an average estimate from 16 analysts of 8 cents a share.

Southwest also posted year-end results of $330 million in earnings, 43 cents a share, on revenue of $5.64 billion, a 40 percent decline from a year ago, but good enough for the company to post its 39th straight profitable year.

The key to Southwest's success was higher yields resulting from higher air fares and consistently filled planes.

"While it is always disappointing to report a year-over-year decline in profits (excluding special items), the fourth quarter and full-year declines were primarily caused by significantly higher fuel prices," said Gary Kelly, Southwest's chairman, president and CEO, in a release accompanying the earnings announcement.

Kelly was scheduled to address analysts and the media by telephone later today.

"Our fourth quarter economic fuel costs per gallon increased 33.7 percent to $3.29, compared to our combined fuel costs of $2.46 per gallon in (the) fourth quarter last year," Kelly said. "Our full year 2011 combined economic fuel costs were $3.18 per gallon, an increase of 34.7 percent, compared to our combined fuel costs of $2.36 per gallon last year."

Despite the higher fuel costs, which he said would require "continued focus on improving productivity and eliminating waste," Kelly said 2011 was a banner year for Southwest with its acquisition of AirTran and the start-up of service in South Carolina and New Jersey, major expansions in four key markets and an overhaul of the airline's loyalty club, Rapid Rewards.

"On May 2, we acquired AirTran Airways, increasing our fleet by 140 aircraft, and extending our combined network into key markets we didn't previously serve, such as Atlanta and Washington, D.C., via Ronald Reagan National Airport, as well as many smaller domestic cities and leisure markets in the Caribbean and Mexico," he said.

Southwest will begin serving Hartsfield-Jackson Atlanta International Airport next month and will add nonstop flights between Atlanta and Las Vegas beginning March 10. Once Southwest and AirTran are fully integrated — a process that could take several years — the airline could offer seamless travel between Las Vegas and the Caribbean.

Earlier this week, Southwest announced a $60 million makeover of its Boeing 737-700 fleet, which will increase capacity in those planes from 137 to 143 seats. Analysts say the capacity increase would add $250 million annual revenue for Southwest. The airline's large presence in Las Vegas would increase inbound seat capacity by more than 1,000 a day by March 2013 when the makeover is scheduled to be completed.

Next week, Southwest will have an early party in Las Vegas observing the 30th anniversary of flying to McCarran. On Jan. 31, 1982, Las Vegas became the 15th city on the airline's route map with five daily departures to Phoenix and Houston's Hobby Airport.

Today, Las Vegas is Southwest's second-largest station behind Chicago's Midway Airport. The airline has an average 194 daily flights to 53 cities — by far the largest at McCarran with a 42.2 percent market share — using 19 gates. Southwest usually has more than 200 daily flights in its busiest travel seasons but scales back seasonally after the holidays.

The airline has 2,807 employees based in Las Vegas, including 1,185 pilots and flight attendants at the airline's crew base.

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