Southwest’s Earnings Soar on Higher Fares

Southwest Airlines Inc.’s earnings took off in the last quarter, with profit up 41% as passengers took more vacations and paid higher fares.

The Dallas-based carrier, which is the largest airline in California, said it earned $106 million, or 13 cents a share, in the third quarter, compared with $75 million, or 9 cents, a year earlier. Quarterly revenue was up 12% to $1.55 billion.

The results met analysts’ expectations and marked the company’s 50th consecutive profitable quarter.

“There was clearly a lot of pent-up demand for vacation travel once the war with Iraq wound down,” Gary Kelly, Southwest’s chief financial officer, told Bloomberg News.

Southwest said that its winter holiday traffic looked promising and that it expected fourth-quarter bookings to grow by 3.8%.

Southwest’s performance has been a standout in the airline industry, which is only beginning to emerge from the financial crisis brought on by the slack economy and the 2001 terrorist attacks.

Last week, Northwest Airlines Corp., the fourth-largest U.S. carrier, and No. 5 Continental Airlines Inc. posted third-quarter profits of $47 million and $133 million, respectively, as they also benefited from a rise in vacation travel without much discounting.

Southwest is the only major airline to have stayed consistently profitable since the Sept. 11 terrorist attacks.

The latest results pushed Southwest shares up 59 cents to $18.99 on Monday on the New York Stock Exchange. The shares are up 37% this year.

Both third-quarter revenue and earnings were boosted by two trends that bode well for the airline: the proportion of seats filled and the higher fares passengers paid, as the company continued to lure vacationers.

“At least since mid-June through the current day, we’ve seen some improvement,” Kelly said. The number of passengers paying full fare was about 36% in the quarter, up from about 31% a year earlier. “We’d like it to be more along the 40% range, but it’s up 5 points from last year, so we’re seeing some healthy signs,” Kelly told Bloomberg.

In the quarter, the revenue yielded from each passenger mile flown was 11.71 cents, a gain of nearly 4% over the 11.28 cents posted a year earlier. Also, the average number of seats filled with paying customers rose to 70.5% from 67.7% a year earlier.

“At 11.71 cents, we’re probably running 5[%] to 10% below 2000,” Kelly said. “So we’re going in the right direction, but we’re still a little low.”

Even as Southwest improved revenue, it saw its costs rise. Total third-quarter 2003 operating expenses were $1.37 billion, up 5.2% from the $1.3 billion seen in the third quarter of 2002.

To help trim costs, the company said that, beginning Dec. 15, it would stop paying travel agents commissions for booking Southwest flights. The move will save $40 million a year, Southwest said. Southwest was the last major airline paying base commissions to travel agents.

In the latest quarter, 55% of Southwest revenue came from tickets booked over the Internet, with 15% from travel agencies.

Times wire services were used in compiling this report.