Southwest boosts second-quarter profit 23%

Southwest 737-300. Photo: Rob Finlayson.

Southwest Airlines' second-quarter net income rose 23.1% year-over-year to $112 million from $91 million in the year-ago period and the LCC expressed confidence in "continued strong revenue performance" for the remainder of 2010.

The Dallas-based carrier's quarterly revenue jumped 21.1% to $3.17 billion, its second-highest-ever revenue total for a second quarter. Its revenue growth during the three months ended June 30 "is the best in the industry domestically" despite the fact that it operated "slightly less capacity" compared to 2009, Chairman, President and CEO Gary Kelly told analysts yesterday. "It's a revenue story. That's what drove our earnings growth."

CFO Laura Wright said the carrier is offering "fewer fare sales" compared to last year and is seeing "strong overall consumer demand." But like other US airlines, SWA said it is committed to little-to-no capacity growth, at least through 2011. "We're planning for flat capacity this year," Wright said. "For 2011, we're expecting a modest capacity increase and a flat fleet." SWA took delivery of three 737-700s during the second quarter to bring its fleet to 544 737s.

As impressive as the quarter's revenue growth was, Kelly said the carrier still has "a very significant opportunity to win more business customers." He revealed that it will roll out a new frequent-flyer program next year aimed at appealing to business travelers. He offered no details but said the development phase will be completed this year for a 2011 implementation. "It [was developed] from scratch and custom-built for Southwest," he said, adding that the initiative could be "a game-changer.” He also stated that SWA likely will make a decision "sometime this year" on if and when it will start international service.

Second-quarter expenses lifted 12.5% to $2.81 billion and operating income was $363 million, nearly tripling a $123 million operating profit in the year-ago period. Traffic rose 2.7% to 20.21 billion RPMs on a 0.3% dip in capacity to 25.47 billion ASMs, producing a load factor of 79.3%, up 2.3 points. Passenger yield heightened 17.3% to 14.93 cents as RASM climbed 21.5% to 12.44 cents and CASM increased 12.8% to 11.01 cents. CASM ex-fuel rose 6.4% to 7.35 cents.