Higher Fares Help Southwest Airlines’ Profit


Higher fares helped Southwest Airlines Co. make more money than Wall Street expected in the first quarter, but the company said Thursday that automatic federal spending cuts could hurt revenue in April.

The average passenger fare on Southwest is now more than $150 one-way, 4 percent higher than a year ago.

The airline also gave details on a new policy for no-shows, and it outlined changes for its operation in Atlanta, where it competes with Delta Air Lines, Inc.

Southwest didn’t fly to Hartsfield-Jackson Atlanta International Airport, the world’s busiest airport, until it bought AirTran Airways in 2011. AirTran uses Atlanta as a hub through which passengers connected to other flights, but starting this fall Southwest will turn it into a point-to-point operation primarily serving people going to or from the city.

The change, Southwest officials said, should make their operation more productive and boost its local traffic there.

Southwest announced those changes as it reported that first-quarter net income fell 40 percent to $59 million, or 8 cents per share. That’s down from earnings of $98 million, or 13 cents per share, a year ago, when the airline booked $116 million in net one-time gains, mostly from fuel-hedging contracts.

Without special items such as fuel hedging, Southwest would have earned 7 cents per share, topping analysts’ forecast of 2 cents per share, and reversing an adjusted loss of 2 cents per share last year.

Revenue totaled $4.08 billion, up 2 percent from a year ago. Analysts expected $4.07 billion, according to FactSet.

Southwest shares finished steady at $13.42 on Thursday after trading in a range of $13.31 to $13.61 during the day.

Southwest said that revenue was weaker than expected in March and so far in April. Automatic budget cuts that went into effect in March have caused federal agencies to cut back on travel. The company said that it’s “cautious” because of the potential effect of those cuts, but that recent bookings for May and June are “solid.”

Lower prices for fuel – Southwest’s biggest expense – offset the slump in revenue in April. Its first-quarter fuel bill fell 3.5 percent compared with the same period last year, to $1.46 billion.

Southwest estimated its second-quarter fuel cost at $3 to $3.05 per gallon, less than a year ago and below its forecast for 2013.

The airline also unveiled details of a new no-show policy for passengers using its lowest, nonrefundable Wanna Get Away and Ding! fares. Beginning with reservations made on or after May 10, no-shows will lose the value of the unused part of their itinerary and the rest of the reservation will be canceled.

Unlike most airlines, Southwest doesn’t charge a fee to change a ticket, and it lets customers apply the amount of unused tickets to new bookings. But the airline believes that the policy results in seats going unsold when passengers fail to show up.

On a conference call with analysts, CEO Gary Kelly was quizzed repeatedly about a glossy new advertising campaign that, unlike many previous ones, doesn’t mention Southwest’s policy of letting customers check two bags for free.

The analysts wanted to know if the ad blitz indicated that Southwest is preparing to charge for bags. Many of them believe that Southwest could make lots more revenue by charging for bags. Kelly suggested that the analysts were parsing the commercials too closely, but he didn’t close the door on bag fees someday.

“There’s no intent here to change the positioning of Southwest Airlines’ brand with this ad campaign,” Kelly said. “Our brand includes ‘bags fly free,’ period.”

Southwest still believes the bag policy draws customers. Kelly said it would lose $1 billion a year if it started charging for bags. But, he added, “I don’t want us to be pinned down into perpetuity on what we might or might not do.”