Southwest Profit Falls but Bookings Strong

DALLAS TheStreet) -- Southwest ( LUV)said third-quarter net income fell but bookings remain strong.

Excluding special items, the carrier reported net income of $122 million, or 15 cents a share. Analysts surveyed by Thomson Reuters had estimated 14 cents. Revenue rose 35% to $4.3 billion, reflecting the impact of the AirTran acquisition. Analysts had estimated $4.2 billion.

In the same period a year earlier, third-quarter net income excluding special items was $195 million, or 26 cents a share.

Including $262 million of unfavorable special items, primarily $227 million for markdowns related to fuel hedges, Southwest reported a third-quarter net loss of $140 million, or a loss of 18 cents a share. In the same quarter a year earlier, net income was $205 million, or 27 cents a share.

"Passenger revenues were driven by strong load factors, revenue yields, and unit revenues, which were all third quarter records," said CEO Gary Kelly, in a prepared statement. He noted, "It is disappointing to report a decline in earnings excluding special items."

Looking ahead, Kelly said, that "despite the cautious economic outlook, our booking trends remain strong. Importantly, business travel has remained stable since spring. Based on October traffic and booking trends, thus far, we expect solid passenger unit revenue year-over-year growth in the fourth quarter."

During the quarter, passenger revenue per available seat mile rose 6%. On the cost side, excluding fuel and special items, cost per available seat mile increased 1.5% from the same quarter a year earlier. The carrier said it expects a "modest increase" in fourth-quarter unit cost.

AirTran became a wholly-owned Southwest subsidiary on May 2. Kelly said that so far, the companies have produced $60 million in annualized cost synergies, primarily due to renegotiation of AirTran contracts and reduction of corporate overhead. The goal, he said, is annual pre-tax synergies in excess of $400 million by 2013.

Southwest ended the third quarter with $3.7 billion in cash and short-term investments, net of $458 million in net cash collateral paid to its fuel hedge counterparties.

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

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