Southwest: Airline With a Profit

Southwest ( LUV) eked out a narrow second-quarter profit but said it cannot predict a profit in the current quarter, normally a money-making period for airlines.

Excluding special items, second-quarter net income was $59 million or 8 cents a share. Analysts surveyed by Thomson Reuters had estimated 7 cents. Revenue fell 9% to $2.6 billion, also in line with estimates. A year earlier, excluding items, net income was $121 million or 16 cents a share.

Including items, second-quarter net income was $54 million or 7 cents.

"We reported a profit in, without a doubt, one of the worst revenue environments for the airlines, ever," said CEO Gary Kelly, in a prepared statement. "Demand for business travel remains weak, and we continue to stimulate traffic with more discounted and promotional fares.
Top 10 Airlines

"Unless demand rebounds significantly, we expect third-quarter 2009 unit revenues to decline year over year more than the second quarter decline of six percent due to more difficult comparisons," Kelly said. Additionally, he said, "based on weak travel demand and fuel price volatility, we cannot predict a profitable third quarter 2009."

Kelly said per-gallon fuel costs declined by 23% to $1.79 per gallon, despite $60 million in unfavorable cash settlements from derivative contracts. The decline will likely continue in the current quarter, he said, when 30% of consumption is hedged.

On the cost side, cost per available seat mile excluding fuel rose 5.8%. During the quarter, 1,400 employees opted to accept early-out programs, with departures scheduled between July 31 and April 15, 2010, at a cost to the company of $70 million.

As of July 20, Southwest had approximately $2.4 billion in cash and short-term investments, net of $425 million in cash collateral paid to its fuel hedge counterparties.

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