Southwest Tops Estimates, Halts Buyback
Southwest Airlines
(LUV) - Get Report
beat earnings expectations in the most recent quarter, but also said it will halt a share repurchase program and review its growth plans in the face of rising fuel costs.
First-quarter net income, excluding special items, was $43 million, or 6 cents a share. Analysts surveyed by Thomson Financial had expected 1 cent. Revenue rose 15% to $2.53 billion, slightly exceeding estimates. A year earlier, the carrier made $33 million, or 4 cents a share.
Southwest said it benefited from revenue initiatives and an early Easter, which contributed to a revenue per available seat mile increase of 8.2%, the best since the second quarter of 2006. Second-quarter bookings are strong, Southwest said.
Nevertheless, the carrier will reduce its planned fleet growth and may pare its schedule. This year, it will accept 29 new Boeing 737-700s, as scheduled, but may retire as many as 22 older aircraft. In 2009, capacity will grow by just 2% to 3%, with deliveries cut to 14 from 28 that had been proposed.
On an earnings conference call, CEO Gary Kelly said the key is for the carrier to maintain its fleet flexibility, given the volatility created by rising fuel costs and the threat of a "travel recession," as well as industry consolidation and capacity reductions that will see second-quarter capacity declines of 5% in Southwest markets.
"We have to be cautious in our outlook about the economy, but clearly the domestic capacity cuts are mitigating that concern," he said. "We had planned to retire 22 airplanes, but we just don't know yet whether it will be all of the 22."
On the subject of consolidation, Kelly said, "Our best course of action could very well be to sit on the sidelines and let others combine,
but on the other hand, if there are some market opportunities created that we could expand into, this is the time we could take advantage of that."
This week,
Delta
(DAL) - Get Report
and
Northwest
(NWA)
announced plans to merge in a deal that will create the world's biggest carrier, a position now held by
AMR's
(AMR)
American. Speculation has also been swirling that other airlines will join forces, such as
Continental
(CAL) - Get Report
and
UAL's
(UAUA)
United.
Meanwhile, Southwest has halted a share repurchase program, citing "today's unstable financial markets and soaring fuel prices." The stoppage came after the company spent $54 million of the $500 million authorized for share repurchase in January.
Southwest shares were little changed Thursday, up 3 cents at $12.53.