Southwest Profit Up Despite Downturn

Southwest Airlines Co., the largest low-fare carrier, said Monday its first-quarter profit rose 14% as the company picked up travelers in markets such as California and Florida, where rivals have reduced or canceled service.

Net income increased to $24 million, or 3 cents a share, from $21.4 million, also 3 cents, in last year’s first quarter. Sales rose 7.5% to $1.35 billion.

Southwest is the only major U.S.-based airline to remain profitable since the war in Iraq and severe acute respiratory syndrome added to an air-travel slump already deepened by the 2001 terrorist attacks. The airline holds down costs by making direct, high-frequency flights between U.S. cities, using one type of plane and not offering extras such as on-board meals.

“They have low costs and a flexible system,” said Ray Neidl, a Blaylock & Partners analyst. “They’re not affected to as great a degree as other airlines by international terrorism, war and SARS.”

Southwest has increased its market share in some cities as other airlines have cut flights. Southwest’s share inside California increased to about 70% last year from 59% in the second quarter of 2001, and it now is the leader in Baltimore with a 40% share, Chief Financial Officer Gary Kelly told analysts. The carrier has a 74% share inside Texas and 43% inside Florida.

The airline is booking more passengers paying full fares as some business travelers resume flying, Kelly said. Total passenger traffic rose about 4% in the quarter and full-fare traffic increased almost 10%, he said.

Southwest shares fell 36 cents, or 2.3%, to $15.16 on the New York Stock Exchange. The Bloomberg U.S. airlines index dropped 3%.

War in Iraq slowed flight reservations this quarter, Southwest said. It expects to remain profitable this quarter with, at best, modest growth in sales. Matching the profit of $102.3 million, or 13 cents a share, in the 2002 second quarter will be difficult, the company said.