Southwest Tops Views on Capacity Cuts

DALLAS (TheStreet) -- Southwest(LUV Quote) said it far exceeded its own expectations for the third quarter and slightly exceeded Wall Street estimates.

"To produce a profit, excluding special items, in this environment is a remarkable accomplishment," said CEO Gary Kelly, in a prepared statement. "Sixty days ago, even a modest profit seemed unattainable."

Excluding special items, the carrier earned $23 million, or 3 cents a share. Analysts surveyed by Thomson Reuters estimated earnings of 2 cents. Revenue fell 7.8% to $2.7 billion. Analysts had estimated $2.6 billion. A year earlier, the company earned $69 million, or 9 cents a share.

With items related to an early-out program and fuel hedging losses, the company reported a net loss of $16 million, or 2 cents a share.

Revenue per available seat mile declined by 2.2%, which Kelly noted was "a substantial improvement from the 6% year-over-year decline experienced in second quarter." The carrier credited a 10% capacity reduction, gains in average fares, higher booking rates, and improved revenue management strategies.

Southwest also is deriving new revenue from charging fees for pets, unaccompanied minor service and early check-ins, but emphasized that it benefits from eschewing bag charges. "We believe we are gaining a substantial amount of customers and revenues by differentiating ourselves in a significant and meaningful way from other airlines," Kelly said.

On the cost side, cost per available seat mile excluding fuel and special items rose 6.6%, partially due to reduced capacity. Fourth quarter CASM is expected to exceed the third-quarter rate of 7.11 cents.

-- Written by Ted Reed in Charlotte, N.C. .