Tags: Southwest | Airlines | Fuel | profit

Southwest Airlines: High Fuel Prices Will Erase Quarterly Profit

Tuesday, 13 Mar 2012 01:46 PM

Southwest Airlines doesn't expect to earn a profit in the first quarter because of higher fuel costs.

Chief Financial Officer Laura Wright said Tuesday that jet fuel prices have been higher than the airline expected — about $3.50 per gallon instead of the $3.35 it had been forecasting.

Wright also said ticket bookings for spring travel weakened in late February. The airline is unsure if that was a short-term blip or signals something bigger about the economy, Wright added.

Southwest has been the most consistently profitable large U.S. airline for many years, so news that it won't make money in the first quarter is another sign that other airlines will also struggle for profits.

Fuel costs are a concern for all the airlines. The spot price of jet fuel has risen 10 percent since the beginning of the year, according to government figures. U.S. airlines burn 48 million gallons per day, making fuel their biggest expense.

Southwest has raised fares 10 times in the past 12 months to offset higher fuel prices, but it has also launched frequent fare sales, sometimes every week, to fill seats. Wright said the most recent price hikes have not been as effective in boosting revenue.

Bookings close to the time of travel fell off at the end of February, Wright said. Bookings so far in March "remain good, but we are cautious based on what we saw in late February," she said at a JPMorgan transportation conference in New York.

"It's really too early for us to know whether some of that near-in weakness that we saw at the end of February — whether it's a sign of something going on in the economy or whether February was an anomaly," she said.

"Fuel unfortunately is the story of the quarter," Wright said. In January, Southwest expected fuel prices to be high but stable in the first quarter. Instead, they have risen, leading the airline to add 15 cents per gallon to its forecast for first-quarter fuel expenses.

"This fuel increase is a significant hurdle for us to overcome, and based on the current revenue and fuel estimates, we currently do not anticipate a profit in the first quarter."

Analysts, on average, expected Southwest to report a profit of 4 cents per share for the first quarter, which ends March 31, according to a survey by FactSet. That's about $30 million, excluding special items such as one-time costs and gains.

Wright said the company was holding to a "favorable" outlook for the rest of 2012, but that assumes stable fuel prices and an economy that's strong enough for the airline to increase revenue.

Analysts expected first-quarter losses from United, Delta, US Airways and American Airlines parent AMR Corp., which filed for bankruptcy protection in November. Only a few airlines, such as JetBlue, Alaska and low-cost carriers Spirit and Allegiant, were expected to make money in the first three months of this year.

Southwest shares rose 10 cents to $8.38 in afternoon trading, bouncing back from earlier losses. The stock started the day down 3.3 percent for the year, as a January rally was cut off by growing concern over fuel prices. By comparison, the S&P 500 was up 9 percent and the Dow Jones industrial average up 6.1 percent in 2012.

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2012-46-13
Tuesday, 13 Mar 2012 01:46 PM
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